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Strong BD required to drive long term growth

Our view

Arvind Smartspaces (ARVSMART) achieved best ever quarterly presales of Rs3.69bn guided by the strong bookings in the Uplands 2.0 wherein company achieved Rs3bn in just 3days and collected Rs2.63bn in Q2FY24. Additionally with the strong cashflow even after Rs1bn deployment towards the land company is Rs1.41bn net cash positive. Company in year to date acquired projects with the gross development value of Rs28bn and plans to deploy another Rs7.5bn towards business development which can add more Rs35bn in the remainder of year. Company reiterated the there is possibility of surpassing the growth guidance of 25%-30% for FY24 with the kind of launches planned for H2FY24 (4-5projects with topline potential of Rs17-18bn)

ARVSMART’s current portfolio has more horizontal development projects i.e. plotted/ villa development, which have short project cycle vis-à-vis vertical development. Horizontal development project with a total saleable area of 1msf takes anywhere between 30-36 months including acquisition and approvals (compared to 42-48 months for vertical development). ARVSMART has projected strong capability to monetize its projects quickly in all the markets of its presence and is expected to generate strong cashflow In the next 2-3years. We continue to maintain our bullish stance on the company with base case WACC at 12.7% and assigned 35% premium to the current portfolio to arrive at a SoTP based NAV of Rs22.7bn which translates in price target of Rs502/share (one year forward TP). Additionally, for bull case, we reduced the discounting factor WACC to 10% and assigned premium of 50% to current portfolio and arrived at price target of Rs586/share while for bear case, we have arrived price target of Rs365/share assuming WACC at 14% with no premium assigned.

Result Highlights:

* Arvind Smartspaces (ARVSMART) achieved best ever quarterly pre-sales of Rs3.69bn (173.3% q/q & 95.3% y/y) guided by the Uplands 2.0 in South Ahmedabad which received an outstanding response and achieved pre-sales of over Rs3bn in just 3 days selling out the entire 1st phase inventory of about 4msf.

* Company collected Rs2.63bn which is highest ever quarterly collections for fourth successive quarter.

* Company acquired new high-rise project in Bengaluru spread across 4.3acres with the developable potential of 0.46msf and gross development value of ~Rs4bn. This project is outright bought under HDFC Platform 2. With this acquisition the cumulative new business development topline potential stands at more than ~Rs 28bn for the current year to date.

* ARVSMART reported revenue of Rs727mn up by 8.7% q/q and 44.4% y/y; EBITDA came in at Rs339mn up by 28.6% q/q and 271.5% y/y with the operating margin of 46.6%. Reported Adj. PAT at Rs86mn up by 28.6% q/q and 271.5% y/y.

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