Saturday, November 29, 2014

Prozone Intu Properties Ltd (CMP 21)


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%)

1 comment:

  1. Thanks for good statistic data here. Knowing the history of company’s life and the ways it ran the business helps to analyze and make right decisions due to existing ones. I have noticed that those ones that use virtual data rooms comparison to choose the most suitable VDR do work better.