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Saturday, November 29, 2014

Prozone Intu Properties Ltd (CMP 21)




 PROZONE INTU PROPERTIES – Rs 21 Target Rs 84
BSE : 534675 NSE : PROZONINTU (FACE VALUE RS 2)

PROZONE INTU PROPERTIES (PIP), formerly known as Prozone Capital Shopping Centres Limited (PCSC)  was demerged from Provogue on 10th Feb, 2012, and was listed on stock exchange on 12th Sept, 2012, is a joint venture between Provogue (India) and Intu Properties (UK), formerly known as Capital Shopping Centres (UK) in which Intu Properties holds 32.38% stake.

Intu Properties invested Rs 202 crore for 25% stake (via FDI Account) in FY07 valuing this company at Rs 808 cr then (Current Market cap of entire company is just 250 odd crore)

Intu Properties (UK) is one of the largest real estate company of UK which is owning & managing close to 8 billion Pounds of assets, Its strategy is to focus on large mixed development (Built-Lease & Built-Sell model) thus facilitates creation of debt-free assets and generating annuity income.

PIP has also got investment from Triangle Fund (South Africa) and Lewis Trust Group for three projects in Aurangabad, Coimbatore and Nagpur of Rs 367 Crore for 38% stake in 2008.

Business Strategy –

 To develop large scale Land Parcels for Mixed Use development.
 75% of the Land to be developed as Residential & Commercial – Build & Sell model
 25% of the Land to be developed as Retail – Build & Lease Model
 The Company follows this model so as the Cash Flows from Build & Sell portfolio facilitate the Build &
 lease model, Thus resulting into Debt Free Annuity Assets.

Residential Projects ‐ Strategy

 The Company invests and develops the entire Clubhouse and Site Infrastructure for the project
upfront before the Launch of the Project.
 The Clubhouse features all the Modern amenities and is spread across 4‐5 acres of Land.
 It provides credibility to the business as all the Amenities are developed Upfront and also all the
project permissions are in place.
 It thus accelerates the sale of the project, resulting into better cash flows.
 The company spends around Rs. 14 ‐15 cr on this upfront Infrastructure as it is cash rich and not
levered. Also since it has economies of scale the cost is apportioned across large no of units resulting
into cost effective way.
 Due to this, the Company emerges as the strongest and the most credible player in the region. Eg, In
Nagpur, Company has received an over whelming response is compared to the best players in the
region such as Tata Realty, Mahindra & Godrej Properties.

The company has land bank of 17.8 million square ft spread over 6 cities in India, viz :
Total Saleable Area         Million Sq Ft
Aurangabad                          1.56 – Land Area 19.79 acres ( 1.50 FSI) PIP Stake 61.5%
Nagpur                                 4.25 – Land Area 41.30 acres (2.00 FSI) PIP Stake 61.5%
Indore                                   4.54 – Land Area 43.49 acres (2.00 FSI) PIP Stake 60.0%
Coimbatore                           3.44 – Land Area 25.66 acres (2.50 FSI) PIP Stake 61.5%
Jaipur                                    2.78 – Land Area 28.31 acres (1.75 FSI) PIP Stake 50%
Mysore                                 1.22 – Land Area 8 acres  (1.75 FSI) PIP Stake 25%
Total                                     17.79

PIP a turnaround story. 

PIP has 17.79 million Sq Ft of land bank (entire land bank is paid up) with only 1.2 million developed till dateand more than 16.5 mn sq ft yet to be monetized.

Out of total 17.79 mn sq ft, 2 mn would be used for Retail, 7.6 mn sq ft for residential and 0.4 mn sq ft for commercial with the balance 8 mn sq ft for future expansion.

Company is almost debt free and will be able to monetize its huge saleable land bank over the next few years to come, which gives vision for long term investments.

 The company has strong balance sheet with net debt at less than 15 cr on a consolidated basis. The total debt for the company is around 152.2 cr, of which PIPs share is 93.6 cr (61.5% share). The company has cash and cash equivalent to the tune of 80 Cr at the parent level making the company relatively debt free.

The company intends to utilize the cash flow from the residential projects to facilitate the construction of the retail malls.

The company will have strong free cash flows this year as the company has delivered the commercial PTC Phase 1 and Saral Bazaar in FY14. Also, strong annuity income by FY16-17, as the company will have 3 operational malls in Aurangabad, Coimbatore and Nagpur with an estimated total annuity income of more than Rs 100 Cr.

The company is estimated to have more than Rs 1000 Cr of cash & Cash Receivables by FY16 due to the launch of 4 residential projects (Nagpur, Indore, Coimbatore and Jaipur) and commencement of 3 retail Malls. (Aurangabad, Nagpur & Coimbatore)

If we take conservative value of entire land bank, which is fully paid up and nowadays such land parcels are difficult to acquire as these are huge single land parcel, which comes close to 2000 cr, out of which stake of PIP is 61.5% that comes to around Rs 1250 Cr, which is 5 times its current market cap, plus annuity income from retail space which will increase every year, the stock is trading at Market cap of JUST 250 CR and is a screaming buy for the conservative target of RS 84 in next 24 months, adding scarcity premium as its one of the listed company which is partly held by foreign partner, which is into high growth consumption theme of tier 2 and tier 3 cities with retail malls business alongwith Commercial complexes, which has high demand from IT/BPO space as cheap availability of manpower, plus company is into Affordability Housing residential project, where company first creates the infrastructure and ameneties before opening of bookings.

Some Back of the envelop calculation :

Company plans to develop 17 million sq ft in next 6 years, imagine if the company earns most conservative profit of just Rs 1500 per sq ft as it is fully paid land bank, (only construction cost of 1200 per sq ft and other cost + taxes another 800 rs expense per sq ft, where as selling price is between 3500 to 4000 per sq ft super built up this is conservative estimate as total current value of land bank is Rs 2000 cr, so company must earn atleast 3000 crore after developing it, else company is better off selling entire land bank at current price of Rs 2000 cr), than total Profit in the next 6 years could be Rs 1500 x 1.7 Cr sq ft = 2550 Crore of profit, which is 10 times of current market cap. Just imagine the potential this company has to earn.

We are yet to calculate lease income which will accrue year after year on 4.5 million sq ft of retail space, If Rs 50 / sq ft lease rental is received per month, than 50 x 12 x 45 lakh sq ft = 270 cr per year, yes its mind boggling lease rental income of Rs 270 cr per year, which alone will give EPS of Rs 18 per year, add that with Profit earned over Rs 2500 cr in next six year, that will give EPS of close to 30 per year.

That means company has potential to earn EPS of Rs 50 per year, and is available at Rs 20 only? Just because it is small cap, under researched and hidden gem.

Company has long term asset which they can list as REIT. FDI allowed in construction to benefit, as company has foreign partner INTU (UK) will buy stake from indian partner and company will become mnc co.

(rakesh jhunjhunwala hold 2%)

Stewarts & Lloyds of India Ltd (Recomended at 30)


Stock made high of 54 after recomendation

STEWARTS & LLOYDS OF INDIA LTD – BSE : 504960 (RS 30.00 FACE VALUE RS 10)

This company is Promoted by IOT Infrastructure & Energy Services Ltd (100% Subsidiary of Indian Oil Corporation Ltd) which holds 55.46% stake in it. The company has small equity base of Rs 3 crore, with very low floating stock. The company which is promoted by PSU Subsidiary Company, Listed on BSE, belongs to turnaround sector, i.e. EPC & Project Maintenance is trading at a Ridiculously cheap, with market cap of only 9 crore.

Main business of the company is to execute EPC, Maintenance, Engineering Services and Project Management orders received from Indian Oil Corporation (IOC) and all its Subsidiaries through its promoter company IOT Infra & Energy Services Ltd (IOCIESL).

Everything was going good with this company till boom period of 2007-8 and before that. After that downhill ride for the company started.

Main reason was Shortage of Orders, Non availability of Bank Finance,  Non realization of old outstanding dues, Encashment of Bank Guarantees, the company has to suffer a lot, as IOCL, from which it used to receive orders was bleeding under subsidy burden, which made difficult for the company to allot cash and undertake for new project and pass on the contract to Stewarts & Lloyds through IOTIESL.

The performance of the company has now hit the bottom and could not go down further.

In the past few months the UPA and new NDA government has allowed to raise Diesel price by 50 Paise gradually, the step which seems to be turning around the corners for the oil companies including IOCL, now that the subsidy on Diesel is just under 1 rupee per litre, as compared to Rs 15 couple of years back.

Now that OIL COMPANIES will again start making profits, which will fill their chest with cash and help them to execute new projects, which will benefit companies like Stewarts & Lloyds.

Even Stewarts & Lloyds have proposed some steps to turn the company around , some of the Strategies adopted by the company is as below :-

Regaining Customer’s Confidence

Initiatives to tie-up with various Public / Private sectors

Strengthening the working capacity with active business development drive

Synergies with group companies to create value

Upgradation of safety and quality standard in order to meet up international standard

Restructuring its marketing group to focus on company’s business for project related and maintenance job

Top build self-sustaining base for manufacturing and fabrication unit

Measures taken for cost reduction and cost control in all the activities

In a recently concluded AGM the Chairman mentioned that

“The company is putting its best efforts to come out of this impasse with the support of its parent company and associate companies.

The parent company has come forward with active involvement to resolve the stalement condition in the banks.

The company is also having talks with its associate companies for bagging some part of the Service / Erection orders from them where involvement of Letter of Credit and Bank Guarantee is NIL.

The company is also concentrating on procurement of maintenance orders from DSP, TATA STEEL and PARADIP where requirement of supplyis very nominal.

The company is aiming for optimum utilization of its available resources and hopes that with the visionary outlook and effective planning of the NEW GOVERNMENT there will be BOOST up in the Infrastructure and Engineering sectors and the company will be able to take the opportunity to grab some of the business from the market and gradually come out from such difficult situation.”

Conclusion : Looking at all the above reasons, Investors can take small exposure in the company as high risk high gain bet with medium term view of 12 months with target price of Rs 50. Which seems achievable if company turns around and start making profits again.


Old Reco - Bharat Agri Fert & Realty Ltd (Recomended at Rs 80)


The stock achieved target of 175

The Company :-

Bharat Agri Fert & Realty Ltd (BFRL), a company came with a public issue in 1962, and is listed
on BSE ever since. Main business of the company is to manufacture NPK Fertilizer, mainly SSP
fertilizer in powder and granulated form.

Company closed down one of its manufacturing plant at Majiwade, Thane and is developing 6.5
acre of land for residential project in 2 phase, out of which phase 1 is completed.
Assets :-

Plant & Machinery (Fully depreciated in the books) located at Wada, Maharashtra for

Manufacturing Fertilizer : Replacement cost for the same could be 15 crore minimum,
considering the cost of land (18.36 acres), plant and machinery and license issued for
manufacturing.
Product Installed Capacity in M.Tons per annum
Single Super Phosphate Powder form 1,32,000
Single Super Phosphate Granule form 99,000
Sulphuric Acid 33,000 (Against licensed capacity of 1,00,000)
Sodium Silico Fluoride 660
Ferric Alum solid 26,400
Surplus Land to the tune of 120 Acres at Wada, Maharashtra (To be used in Organic Farming and
Aromatic plant cultivation, Approx value of land Rs 100 Crore)
70,000 Square Feet of inventory in the form of ready to move in flats at Majiwade, Thane (Current rate
is approx Rs 9000 per Square Feet, that comes to around 63 crores, for which construction expenses
already booked)
Earning potential from Phase 2 of Majiwade project of 280000 saleable sq ft (Rs 4000 profit
per sq ft x 280000 = 112 Crores in next 3 / 4 years
Bharat House at Fort, Mumbai where company plans to develop 15000 square feet of commercial
premise, which will earn Rs 5.4 crore as lease rental per annum from FY 2015 onwards. (The rate per
square feet in Fort area is close to Rs 20000, which brings valuation close to Rs 30 crore)
BAFR recently purchased Commercial Space for office use at distressed price of Rs 10 Crore at Hubtown
Solaris, andheri
SSP stock as on 31.03.2013 as 16,000 M.Tons, Rs 9.93 Crores & Rs 23 Crore stock in trade in real estate
division
Business : -
Fertilizer :
BAFR is confident of selling 70,000 M.Tons of Powder SSP / Granular SSP in the year 2013-14, in
the state of Mahrasshtra, against state requirement of 9 Lakh M.Tons, mainly through supply
agreement with M/s. Indian Potash Ltd (Asia’s largest fertilizer trading co) of 30,000 MT,
Maharashtra Agro Industries Development Corp Ltd of 10,000 MT and under company’s own
brand Bharat of 30,000 MT. In addition to these, company is negotiating to sell additional
quantity to M/s. Chambal Fertilizers & Chemicals Ltd and M/s. Jubilant Industries.
According to the company, Raw material could be planned in advance and since the company’s
plant is in upto date condition to run at minimum 50% capacity utilization (70,000 MT target
sales against installed capacity of 1,32,000 MT, thereby no additional Capital Investment
required to catch ready market for GSSP for additional 70,000 MT per annum) in 2013-14 and
there will be excellent performance in company operation from fertilizer business during 2013-
14 with reasonable profit margin.
Real Estate :
BAFR will start Phase 2 of its residential project of 2,80,000 Square Feet saleable area from
October 2013 which will be completed by 2017/18, which will bring in the revenue of Rs 250
crore and pre tax profit of close to 110/120 crores, spread over next 3 years. (Only
construction expense and TDR expense will be incurred to the tune of Rs 2000 & 2500 PSF
against selling price of above Rs 9000 PSF), the balance stock of ready flats for 70,000 Sq Ft as
on 31.03.2013 of Phase 1 would be sold during 2013-14 and 2014-15, to enable company to
have funds arrangement from its own resource for Phase 2.
The company has already received MoEF permission Letter No SEAC 2012/CR-288tc-2 dated
17th May 2013 for Phase 2 project and will be shortly apply to Thane Municipal Corporation for
necessary approval of plans.
The company was in the final stage of starting redevelopment of Mumbai office at Nanabhai
Lane, Fort, Mumbai 400 023 and the area of 15,000 Sq Ft would be given on lease and this
project would be completed in 2014-15. The company would earn income of Rs 45.00 Lacs per
month on its completion.
The company is only liable to pay MAT at the rate of 22.66% on the profit earned.
Conclusion :-
Thus BAFR, the Debt Free, and Cash Rich company with huge assets and earning visibility
over next 4 years along with excellent ROE and ROCE plus tax benefit as company is only
paying MAT (Minimum Alternative Tax) at the rate of 22.66% only, can earn an EPS of Rs 15
from Fertilizer division and EPS of close to Rs 60 from its real estate division (70,000 Sq Ft
unsold ready flats to be sold in FY 14 & FY 15 @ of Rs 9000 Per Square feet) in FY 14, which
could jump to Rs 100/120 once booking and revenue starts from Phase 2 of Majiwade, Thane
residential project, October 2013 onwards.
Hence the stock is available at P/E multiple of 0.80 for FY 14 and 0.6 for FY15 earning per
share of Rs 100 and Rs 120. If dividend increase taken into consideration than tax free
dividend yield comes close to 7.5% per annum for expected dividend of Rs 6 per share for FY
14 and 10% per annum i.e. Rs 8 per share for FY 15.
Considering above all listed asset of close to Rs 250 crores, that comes to Rs 500 per Share,
plus earning potential from Phase 2 of Majiwade project of 280000 saleable sq ft (Rs 4000
profit per sq ft x 280000 = 112 Crores in next 3 / 4 years, adding yet 200 rs per share, that
comes to asset value per share of close to Rs 700, while this under researched stock is
available at Rs 80, i.e. more than 85% discount to its Assets Value.
Hence the stock at CMP of Rs 80 is grossly undervalued and is a screaming buy with a target
of Rs 175 in the next 12 months.
Link to download latest Annual Report :-

http://www.mediafire.com/?7v12p1mmxbsfolx

(Author : Mrs Hemangi Gandhi, Ahmedabad – hemanghigandhi@gmail.com )