ARCP, which historically focused on commercial leases, has now moved towards residential projects which will help it grow earnings by 35%CAGR during FY11-13. We are +ve on the company for the following: (i) Rental revenue is estimated to increase by 60%YoY in FY11 to Rs800mn and Rs1.2bn in FY12E on operation of Kirtinagar mall by April'11 and Tricolour Hotel on NH8 (ii) Further, it has started to earn residential revenue and expects to launch over 3 msf in FY12E (iii) It expects to complete 2.85msf of IT space by FY13E which includes first IT SEZ Rai (phase-I operational in Q4FY12) and IT SEZ Panchkula.
Rental income set to increase to Rs1.2bn in FY12
We expect the company's lease rental income to rise 60% YoY to Rs0.8bn in FY11 and rise further to Rs1.2bn in FY12E. Key projects increasing rental income are: (i) Kirtinagar Mall with more than 0.4 msf pre-leased to clients such as MORE, Westside, Lilliput, Fastrack and Beverly Hills (ii) Tricolour Hotel on NH-8 - to earn rentals in Q1FY12 onwards (iii) additional leasing of Manesar IT park to generate additional rental income.
Moving towards residential projects
The company's two residential projects in Kapasera and Manesar have almost sold out and substantial revenues recognised till FY11. ARCP is expected to further launch two residential projects in Gurgaon, one at Nimrana (2msf) and the other at Sec-91 (1.2msf). The company had acquired land parcels for these projects about 6-9 months back. Moreover, it also acquired few other land parcels in the last one year, leading to a D/E ratio of 0.2 (Dec'10) for an otherwise net cash positive company.
VALUATIONS AND RECOMMENDATION
We initiate coverage with a BUY recommendation and a target price of Rs130 after giving 20% discount to NAV since the stock looks attractive from a valuation perspective. However, we will witness an upside movement only after the company's residential launches.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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