About the Company

Anant Raj Group has transitioned from a contractor to a developer over the last 5 decades. Established in 1969, it operated as one of the largest contractors in Delhi, contributing to the construction of about 30,000 houses for the Delhi Development Authority (DDA). The company is one of the leading real-estate developers in the Delhi-NCR Region, as of September 30, 2023, they have developed 4.20 million square feet of commercial space across completed, near-completion, and ongoing projects and have completed and nearly completed projects with a Completed Developable area of 9.07 million square feet.

The company has recently in the year 2021 entered into the domain of data centers where they opened 3 Data Centers, One in IT/ITES buildings built over 43.40 acres of IT/ITES land at Manesar, Rai, and Panchkula to capitalize on the potential of data centers

The company has the following sub-segments:

• Residential
• Commercial
• Hospitality

Investment Rationale:

• The company is aggressively positioned to build strong Data Centers in the coming year
• The company is well positioned to get benefit out of strong real estate demand in Gurugram, Delhi-NCR Region
• Well Diversified Portfolio in the Real Estate Segment along with strong execution and sufficient land bank ensure the company is expected to have strong sustainable growth.

History of the Company:

Source: Investor Presentation

Business Segments:

Residential

The Residential Segment is the company’s core segment of the company where the company takes projects both for the luxury and affordable housing segments as well.

Currently, the company has projects which are as follows:

• Ashok Estate (Affordable Housing segment in Gurgaon)
• Birla Navya Project (JV with Birla Estates, The project has achieved tremendous success, with all 554 units across the first three phases being sold out and now currently Phase II is in progress and expected to be completed in FY25)
• The Estate Residences (a collection of high-rise luxury residences spanning a saleable area of 1 million sq. ft. It will feature 248 premium units, consisting of 4 and 5 BHK apartments.)
• Tirupati Affordable Housing Segment (the development of affordable housing project, ‘Anant Raj Aashray II’, comprising 1,848 units across 10.14 acres in Tirupati, Andhra Pradesh. )

Commercial

The commercial segment comprises both Data Centers & Warehouses which are located in the region of Gurgaon they have built 3 Tech Centers in the place of Manesar, Rai, and Panchkula, where these tech centers are converted into Data Centers They also have nearly 43.4 acres of land with government approval in place, wherein they are getting rental from these properties through warehouse segment 

Hospitality

This is another segment in their portfolio that is predominantly invested in the hotel sectors, where there are currently two existing hospitality projects, one in  Hotel Bel La Monde, Anant Raj Limited has got permission to develop the proposed structure with an FSI of 1.75 as against earlier FSI of 0.15. Another existing hospitality project Hotel Stellar Resorts is comprised of 7.61 acres and has a built-up area of 0.70 msf. The Company is developing a Commercial Center on 0.80 acres of land in Ashok Estate, which is expected to be completed in 2027. The project construction has commenced and will generate revenues in the form of rental income as the project will be leased out. 

Management

• The company’s management is led by Mr. Amit Sarin (MD) who has nearly 30 years in the industry. The company is managed by the fourth generation entrepreneurs and it’s a family-owned and managed business
• Mr. Aman Sarin (Director & CEO) of the company, His leadership focuses on advancing the company’s initiatives in residential, commercial, and industrial property development
• Mr. Ashim Sarin (Direction & COO) Head of the Data Center has nearly 27 years of experience in the industry.
• The promoter currently has a 60% stake in the business, which is reasonable for the size of the business that being said there has been equity dilution of the promoter due to raising QIP (Qualified Institutional Placement) from marquee investors to primarily expand on the data center business.
• The company board comprises Experienced Board Members who are qualified Chartered Accountants who have strong fundraising experience and an additional director appointed who has expertise in Law, which ensures the company’s corporate governance and internal controls are in place, with highly qualified professionals.

Deep-Dive on the Investment Rationale

The company is aggressively positioned to build strong Data Centers in the coming year

The business has a strong leverage on building capacity in the data center business, where currently it contributes significantly low contribution to revenue of the business with a strong capacity expansion in the coming 3 years in the data center would in turn contribute and enhance margin significantly in the coming years, as with a strong focus on with 0.5 MW has been operational in the cloud with basic service which is generating of around 75 crores.

By FY26, Anant Raj Limited plans to expand its “Anant Cloud” services, increasing its capacity from 14 MW to 21 MW. The cloud segment is projected to generate revenues between ₹2,100 crore and ₹2,500 crore, driven by its Infrastructure as a Service (IaaS) offerings. The company anticipates a robust EBIT margin of 70-80%, contributing significantly to EBITDA margin growth in the coming years.

Currently, the operational 6 MW facility generates an EBITDA of ₹8 crore per quarter (₹32 crore annually). With capacity expansions, this is expected to grow substantially. The Manesar facility is set to scale up to 21 MW by December 2024, while a new 7 MW facility in Panchkula is scheduled to become operational by March 2025. These developments, along with enhanced cloud services, are anticipated to drive strong revenue and EBITDA growth, acting as a key lever to accelerate the company’s earnings potential.

The company is well positioned to get benefit out of strong real estate demand in Gurugram, Delhi-NCR Region

The growing demand in the Gurugram and Delhi-NCR region presents significant opportunities for the company, which has established a strong joint venture with Birla Estates. Leveraging its robust brand reputation and extensive land bank, the company is well-positioned to capitalize on the region’s booming real estate market.

The influx of incremental investments from major players such as Adani, EMAAR, and DLF, coupled with the presence of IT parks, consulting firms, and a strong focus on infrastructure development, ensures sustained demand in the coming years. This favorable environment is expected to drive robust cash flows, enabling the company to sustain its operations and achieve long-term growth.

Well-Diversified Portfolio in the Real Estate Segment along with strong execution and sufficient land bank ensure the company is expected to have strong sustainable growth.

The company is strategically diversifying its real estate portfolio across residential, commercial, hospitality, and warehousing segments. With nearly 45 acres of prime land in the region and a strong project pipeline, the company is well-positioned to withstand market cycles and achieve sustainable growth in the years ahead.

Additionally, the company has demonstrated exceptional execution capabilities in its real estate projects, consistently delivering and completing them within 1-2 years. This track record underscores its operational efficiency and strengthens its market reputation.

The company’s extensive land bank of over 200 acres is projected to generate revenues exceeding ₹15,000 crore in the next 3-4 years, further solidifying its financial outlook and growth potential.

Risk/Threats

Exposed to Market & Economic Cycles: 

The company generates the majority of its revenue from the real estate sector, which is inherently vulnerable to economic cycles. During downturns, this sector often experiences reduced project occupancy rates, leading to cash flow challenges and higher leverage, which can make sustainability difficult.

This vulnerability is evident in the company’s historical performance. Between FY13 and FY19, revenue growth was negative, and profitability declined significantly, dropping from ₹108 crore in FY13 to ₹40 crore in FY19. Despite recent improvements, the company continues to rely heavily on its real estate segment for revenue, leaving it exposed to cyclical risks in the sector.

Geographic Concentration: A significant risk the company faces is geographic concentration, as it primarily operates in Gurugram and the Delhi-NCR region. While this area is experiencing growth, a potential slowdown in the region or a depletion of the land bank could hinder the company’s growth trajectory in the real estate sector.

To mitigate this risk, the company has ventured into new markets, such as Tirupati in Andhra Pradesh, where it is developing affordable housing projects. This diversification strategy aims to establish a broader geographic presence across the country. However, the success of this approach remains to be seen, as the Tirupati project is still under development and expected to be completed in the coming years

 Competitive Intensity: There is massive intensive competition in the Industry where there are many vowing to get into the Gurugram Sector 63-A, where there are marquee developers who are there ranging from Mahindra Lifespaces, DLF, Adani Realty, EMAAR, and others which is increasing the competition in the regions, its crucial on leveraging the strong brand equity and execution capability.

Poor CFO to PAT Conversion: 

Over the years, the company has not been able to convert its Profits into Cash where the 5 year PAT has been over 500 crores and the CFO has nearly 190 crores which is nearly 40-45% of the PAT converted to Operating Cash flows. company’s cash flow is getting stuck at the Inventory & Receivable which is again questioning the facts extremely crucial for the company to generate strong operating cash flow where the company has a strong requirement of investing in the Data Centers.

Valuation

As of November 21st, the company’s market capitalization stands at ₹22,633 Crores, with a trailing twelve months (TTM) P/E ratio of 65.3. With an EV/EBITDA of 50.6 when looking at isolation the company looks quite expensive, but in considering the growth. The PEG ratio for the company is 1.44 which is reasonable when accounting for its growth.

The company is aggressively expanding its data center segment, funded through capital raised via Qualified Institutional Placements (QIP) and preferential allotments. This strategic focus ensures that the company remains well-capitalized for its data center expansion, which is expected to drive significant earnings growth and contribute to margin accretion in the coming years.

In the real estate segment, the company has a diversified portfolio across residential, commercial, and hospitality projects. Its extensive 200-acre land bank and plans to acquire an additional 25 acres position it to take advantage of upcoming opportunities. Cumulatively, these projects are expected to generate revenues of ₹15,000 crores over the next 3-4 years, reinforcing its strong cash flow and earnings potential.

That being said investors need to be cautious especially on equity dilution as the company over the company has been unable to generate strong operating cash flow to re-invest organically, its crucial the company generate such strong cash flow as that wouldn’t lead to high capital raising via equity dilution and debt in the balance sheet for the company, with the intensive competition in the Gurugram with major developers presents on leveraging the brand equity and execution to stand apart and get well-positioned in the market.