Buy Anant Raj Ltd for the Target Rs 710 by Motilal Oswal Financial Services Ltd
Profitability improves with the scale-up of data centers Real estate to remain a steady cash generator
Anant Raj (ARCP) has received RERA clearance for Group Housing 2 (The Estate One), offering ~0.90msf of saleable area (~INR20-22b GDV), and is expected to launch the project in 2QFY27. Further, it is likely to launch Group Housing 3 in Sector 63A, Gurugram, with a GDV of INR29b. Overall, projects offering INR50- 55b GDV could be launched in FY27. We expect INR29.3b/INR33.7b pre-sales and INR17.5b/INR25.1b collections in FY27/28, respectively. Accordingly, we expect cumulative free cash worth INR22b from the real estate business over the next two years, which would fund the capex for data centers.
Data centers scaling up well; capacity to increase to 63MW in FY27
The company clocked INR900m revenue in the data centers (DC) segment, with ~71% EBITDA margin and ~45% PAT margin. The current IT load capacity of 28MW (21 MW at Manesar + 7 MW at Panchkula) is planned to increase to 63MW by FY27-end. Further, it has maintained its target to scale this to 357MW IT load by FY32, with 117 MW expected to be operational by FY28. It has signed an MoU with Haryana Enterprise Promotion Centre (HEPC), Government of Haryana, to facilitate investments and accelerate adoption of ARCP’s DC and cloud services across the state. We bake in a 134% CAGR in data center revenue over FY26-28E, reaching INR9.6b, supported by capacity rampup and improvement in utilization.
Demerger of the DC business on cards
The Board of ARCP has approved a composite scheme of arrangement to demerge its DC and cloud businesses into Ashok Cloud Pvt Ltd (ACPL). ARCP shareholders will receive one ACPL share for every ARCP share held. ACPL would offer a pure play on the DC business, which is a key value generator, while ARCP would continue to reap the economic benefits due to its holding in the resulting company (ACPL would remain a subsidiary of ARCP). As a merged entity, the existing mode of operations involves utilization of the FCF from the real estate business to scale up the capex-heavy DC business. In the initial years post the demerger, we anticipate capex in ACPL to be met through the fund transfer from ARCP and rental income generated by the operational capacity.
Financial performance
In 1QFY27, revenue grew 7% YoY to INR6.3b (broadly in line with estimate). EBITDA witnessed a strong 22% YoY growth to INR1.8b (8% beat on our estimate), while EBITDA margin expanded 310bp QoQ to 29.0%, driven by strong performance in the DC segment. Supported by better operating margin, adj PAT grew 19% YoY to INR1.5b, while PAT margin stood at 23.7%. We maintain our revenue CAGR of 18% over FY26-28, reaching INR35b, whereas EBITDA margin is expected to expand 920bp to 35.3% during this period.
Valuation and view
* We have discounted the residential business cash flow at a 12.4% WACC, while assigning a 25% premium to capture the growth potential from the company’s ongoing land aggregation in Sector 63A.
* The commercial business cash flow is discounted at a capitalization rate of 8.0%, while delivering a 4% terminal growth rate.
* The data center business is valued on a DCF basis.
* We reiterate our BUY rating on the stock with a revised TP of INR710, based on our SoTP valuation.
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