Stock Review: Ansal Properties

Ansal Properties is a stock which is currently out of favour. It belongs to a sector which is currently out of favour with the investors. This company has been around for over four decades and is involved in the entire gamut of the real estate activities. This company has got about 19 township projects, which are going on in almost five states. Some of the large projects, which the company is executing includes is a 3500 acre project in Lucknow by name of Sushant Golf City. They are doing a 2500 acre project in Greater Noida. The company has recently started a project called Esencia, which is about 220 acre, including phase I and phase II. This project is located in Gurgaon.

If you look at the financials of the company, for FY10, this company achieved sales of about Rs 750 crore. Meanwhile, PAT was about Rs 70 crore. In the first nine months of the current financial year this company has done almost what it did the entire last year which is Rs 750 crore and it has achieved a PAT of about Rs 68 crore, which is almost similar to what it did for the full year last year. For full year, the EPS is expected to be around Rs 5-5.5. So at the current price of about Rs 37-38 this stock is trading at a PE multiple of about seven, which seems reasonable for this company.

If you look at the investments, which have been made by various PE funds in various projects of the company, HDFC Asset Management bought 8.5% stake in the Greater Noida project and it gave about Rs 225 crore for the 8.5% stake. Redford Capital has just invested in the Esencia project. They have given Rs 200 crore to the company for the Esencia project. Of course, all these projects, all these investments are project level findings and not really investments into Ansal Properties.

This company has passed the enabling resolution to raise about Rs 1,000 crore by way of QIP. Now, given the size and scale of the projects the investments made into the company and also the revenue and profit potential for these projects, I think for the company the current marketcap of about Rs 600 crore looks small.
 
For a long-term value investor, out of favour stock in out of favour sector provides margin of safety. We are in a scenario when the inflation is high and the interest rates are also high which do not augur well for an interest rate sensitive sector like real estate. So this is a stock for the patient contrarian investor.

The stock during the boom times had seen a price of over Rs 500 and it also fell to about Rs 21 when the markets came down in 2008-09. At the current price of Rs 38 given the improved financials and also the fact that the company is able to manage funds for expansion, I think the negative with regards to the sector and the company looks pretty much factored in the current market price.