Stock Review: Ansal Properties & Infrastructure (API)

 

With The Stock Still Going Cheap, Investors Need Not Rush In To Buy it

 

The stock price of Ansal Properties & Infrastructure (API) has nearly doubled in the last one year. The company is benefiting from the demand for affordable housing, which accounts for a large portion of its portfolio. Since the beginning of the year, the scrip has gained 24%, whereas the ET Realty Index has declined 7%.

   API is largely focused on the North Indian real estate market. Over two-thirds of its projects are related to residential properties and the rest includes industrial and commercial projects. A little over half of its land bank is located in Delhi NCR with the rest spread over Punjab and Rajasthan.

   The firm posted a robust consolidated net profit growth for the quarter ended June, backed by an increase in revenue due to better asset prices and the launch of new projects in residential and commercial segments.

   Consolidated sales increased 82% to 250 crore in the quarter. This was boosted by the launch of a couple of township projects in Gurgaon and Lucknow.

Bottomline was also supported by lower rise in raw material cost, even as interest cost increased. This allowed the company to more than triple its net earnings to 38 crore for the three months ended June over the yearago period.

   What is of concern, however, is its higher debt equity ratio of 1.24 as of March 2010. The ratio hovers at around one for medium-sized realty players. Moreover, API has failed to generate operating cash flows in the past three years due to higher inventory.

   Going forward, the company could maintain its growth momentum on the back of improved demand for residential properties. The API stock is trading at 10.8 times its earnings for the last 12 months compared to an average of 24 for its peers. This makes its valuations relatively cheaper. However, cautious investors may wait for performance in at least one more quarter to ascertain whether the company can sustain this growth in the medium term.