Dec, 20th 2013

Aricent Infra Ltd (ARIL) (Kyra Landscape Ltd)

Initia

ting Coverage

Rating: BUY Target Price: 175 Upside 85% CMP: INR 94 (as on 20th Dec 2013)

Upcoming Project to boost growth

Aricent Infra Ltd (ARIL) now known as Kyra landscape Ltd is engaged in the business of infrastructure development and real estate projects mainly catering to Mumbai and Thane region. The company got incorporated as a chemical company in 1998 which got listed on BSE in the year of 2000. Due to non performance of the chemical business the management decided to sell its whole stake to ARIL in 2010. After the stake sale the company diversified by changing its business profile from chemical business to real-estate.

Upcoming Project to boost business growth: Post change in the business profile ARIL made its first investment into a huge land parcel of 25 acre at Dombivali, Thane with the total cost of INR 320 mn. It has completed the land acquisition process and plans to develop a whole township over the next ten years that will include residential, commercial buildings, restaurants, schools, hospital etc. At present the company has received all the clearance and is expected to commence construction work within next six months. Due to strong residential demand in the Dombivali region company has started receiving enquiries and bookings for pre-launch will be opened soon. The project is still into investment and development stage and any significant revenue is expected from FY15 onwards. We expect saleable area sold to pick up from FY15 onwards primarily on the back of mid income projects and limited geographical development in Mumbai and Navi Mumbai area. We expect sales volume of the company to pick up from 0.25mnsqft in FY15E to 0.5mnsqft in FY16E and 1mnsqft in FY18E with total sales value rising at CAGR of 75% from INR 47mn in FY13 to INR 914 mn in FY15E and INR 1344 mn in FY18E.

Pre Sales collection and growing construction activity to improve Cash Flow: The Company had negative free cash over FY12-FY13 primarily on account of investment made into Dombivali project. We expect cash flow to improve only from FY15E onwards with growing construction activities and rising Pre sales booking. We expect the company to recognize major revenue from FY15E on achieving 25% of sales booking with sales volume and construction activity to pick up from 0.25mnsft in FY15E to 0.5mnsft in FY16E and 1mnsft in FY18E. Mumbai Thane Real estate - one of the strongest markets in India: Historically, the demand for real estate in Mumbai and Thane region has been high due to increasing population and limited geographical development. However post Jan- 2013 the sales volume has declined by 15% largely due to soaring real estate prices, making it unaffordable for the masses. We believe given the rising middle class population and rising property prices in western suburbs of Mumbai, the mid income projects in the far areas will see pickup in demand in coming years. For companies such as ARIL who have invested into development of the whole township will be one of the major beneficiaries. Valuation:. At the CMP of INR 94 ARIL is trading at PE 12.3x its FY18E EPS of INR 7.6. However with good revenue visibility we have use DCF approach to arrive at the rightful valuation. A land bank is developed over a period of time and the resulting assets are sold over a period of time, the time value of cash flow (both incoming and outgoing) needs to be considered. Based on DCF valuation we assigned a BUY rating to it with a target price of INR 175 with an upside potential of 85% over the next three Years.

BSE NSE Bloomberg Reuters

530967 NA ARIIL:IN ARIC.BO

Sensex ARIL

52 Wk: Hi/Lo 21483/ 17448

102/58

Mkt Cap (INR bn) 3454 5.38

Equity (INR Mn) 3767 274.8

Mon. Avg. Vol 136000

Face Value 5

* - TTM standalone basis ACE equity

Share Holding %

Sep-13 Jun-13

FII 0 0

DII 0.05 0.05

Corporate 37.31 33.54

Promoter 2.8 2.8

Public & Other 59.84 63.61 Returns % Abs Perf

Rel to Sensex

1 Month 1.45 5

3 Months 29 11

1 Year 7.06 8

Relative Price Performance

Financial Summary

Y/E Mar Sales (INR mn)

YoY (%)

EBITDA (INR mn)

EBITDA (%)

PAT (INR mn)

YoY (%)

EPS (INR)

RoE (%)

RoCE (%)

P/E (x) EV/EBITDA (x)

FY13 47 0.0 12 25.2 8 0 0.2 3.1 3.0 627.3 1473.2

FY14E 50 5.0 13 26.0 8 0.3 0.2 3.0 2.2 625.5 1117.5

FY15E 914 1741.6 560 61.3 345 4071.6 6.3 69.2 52.6 15.0 10.3

FY16E 1,125 23.1 613 54.5 370 7.3 6.7 48.7 47.1 14.0 9.3

FY17E 1,219 8.3 633 52.0 380 2.6 6.9 37.7 41.3 13.6 8.9

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Khandwala Securities Limited

Company Background

ARIL is a real estate development company with major presence inlow cost township development. Post Acquisition thrust for the company. The company has well expertise managementThe company is preparing itself to createconvert its land bank into a township which will include and hospital. QIP

Investment rationale

Upcoming Project to boost business growth:

bank to develop residential and commercial real estate projects. One of the major where it started acquiring 25 acre of land (sealable area of 182) in Dombivali Mumbai region with the totaprocess and has plans to develop a whole township schools, hospital etc to be executed over next 10township will be built in three phases. 3-4 years. At present it has completed the land acquisition process with all construction work within next six months. due to strong residential demand and it will open

Sufficient land Bank to be Dnext Ten years by ARIL

Source: Company, KSL research

Development and phasing- Key highlights:

� Total Duration planned for execution of the

� For Construction planning, the plan is broken into three phase

� Each Phase will take 3-4 years for completion from s

� In first phase it will develop residential project over 1mnsqft

� Second phase and third phase it will develop residential, commercial and hospital over 2mnsqft

0.250.5

0.7511.3

1.61.9

0

0.5

1

1.5

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2.5

3

3.5 mnsqft

is a real estate development company with major presence in Thane region, Mumbai Post Acquisition the company’s Dombivali project has become ahas well expertise management with emphasis on contemporary architecture.

pany is preparing itself to create a landmark in township development. The company is contemplating to a township which will include commercial development, residential, restaurants, schools

growth: Post acquisition in 2010 ARIL has made major residential and commercial real estate projects. One of the major investments

acre of land (sealable area of 18-20 Acre) or 3mnsqft (Considering Floor space index of in Dombivali Mumbai region with the total cost of INR 320 mn. At present ARIL has

plans to develop a whole township that will include residential, commercial buildings, restaurants, executed over next 10 year time frame. As per our discussion with the management the

In each phase it will develop and construct 1mnsqft of land 4 years. At present it has completed the land acquisition process with all the clearance and

six months. The management has stated that company has started receivingit will open Pre sales bookings soon.

Developed over Total Area Sold and Sales Value (

Source: Company, KSL research

Key highlights:

Total Duration planned for execution of the saleable 18-20 acre is 10 years

For Construction planning, the plan is broken into three phase

4 years for completion from start to end

In first phase it will develop residential project over 1mnsqft

Second phase and third phase it will develop residential, commercial and hospital over 2mnsqft

1.92.25

2.6

31125

1125

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1375

4500 45005000

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FY15EFY16EFY17EFY18E

Total Sales Value (INR mn)Blended sales realisation (INR mn)Total Area Sold (mnsqft)

2

Mumbai focused on real estate has become a major area of

with emphasis on contemporary architecture. he company is contemplating to residential, restaurants, schools

major investment into land investments was made in 2012

(Considering Floor space index of has completed the acquisition

will include residential, commercial buildings, restaurants, As per our discussion with the management the

t 1mnsqft of land within a period of the clearance and is expected to start

The management has stated that company has started receiving enquiries

Total Area Sold and Sales Value ( INR mn)

Second phase and third phase it will develop residential, commercial and hospital over 2mnsqft

1375

1650

1710

5500 5500 5700

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0.23

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FY18EFY19EFY20E

Total Sales Value (INR mn)Blended sales realisation (INR mn)Total Area Sold (mnsqft)

Khandwala Securities Limited 3

Pre sales booking and growing construction activity to improve cash flow: The Company had negative free cash over FY12-FY13 primarily on account of investment (INR 320 mn) made into the Dombivali project. These projects are into the investment and development mode hence any significant revenue or cash flow is only expected with growing construction and Pre sales activities. We expect the company to recognize revenue from FY15E on achieving 25% of sales booking with sales volume and construction activity to pick up from 0.25mnsft in FY15E to 0.5mnsft in FY16E and 1mnsft in FY18E. The total sales value rising at CAGR of 75% from INR 47mn in FY13 to INR 914 mn in FY15E and INR 1344 mn in FY18E. Capex required Land Bank: Of the total capex requirement of INR 1406 till 2018E company plans to raise debt of INR 200 mn in FY15 for its initial capex requirement and later it will utilize its internal accruals from pre sales proceeds along with keeping equity route open for its future cash requirements. Sufficient land bank for next 5 years: ARIL has sufficient land bank which will be developed over next 5 years. The management has further indicated that they will be looking for similar land bank in the same Dombivali region which will help company to continue its growth momentum. However we believe to continue its growth momentum it needs to wisely deploy its cash to acquire new land. Mumbai Thane Real estate - one of the strongest markets in India: Macro markets in India have witnessed sharp corrections and saw strong recoveries in the past few years. However, among all, Mumbai is the strongest and most-resilient real estate market. This was evident during the downturn in 2008-09; Mumbai (excluding Navi Mumbai) was the last to see property price corrections and was amongst the first to recovery. Considering July 2007 levels as a base of 100, Mumbai property prices came down to 83 and within less than 6 months, it rose back to the original levels. Currently, it is at 121. This, when compared to other active markets, it is the fastest and strongest recovery.

Property price movement in top four cities Robust growth in average price per sq ft. for residential properties in Dombivali (E)

Source: Company, KSL research Source: Company, KSL research Historically, the demand for real estate in Mumbai has been high due to increasing population and limited geographical development. The monthly absorption in October 2008 was just 3.5msf, which increased gradually at a good pace and reached its peak in March 2012, when it touched a monthly absorption of 20mnsft. However, post-March 2012, the absorption rate has declined by 15%, largely due to soaring real estate prices, making it unaffordable for the masses. Hence we believe the high capital rates within the domains of Greater Mumbai; peripheral areas would continue to report healthy development as well as traction in affordable housing segment. Micro-markets like Dombivali, Thane and Mira Road Bhayander have witnessed a healthy growth in the past, and are expected to witness healthy traction given the affordable ticket sizes. For the last 4-5 quarters, the government was slow in approving new projects, which resulted into a slump in new launches in Mumbai. However, in the past few months, the government has shown signs of easing its policies and started approving projects quicker than in the recent past. Though the pace of approvals is nowhere near to the historical pace, we expect it to pick up gradually. This will result into higher number of new launches and faster execution, which would increase the volumes going forward

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INR./SqFt

Khandwala Securities Limited 4

Revenue to see strong turnaround post FY15E: After taking over the company in 2010 and due to change in the business profile into real estate there is barely any revenue and profit that the company reported in the past. However with Dombivali project on the cards and strong visibility we expect company’s revenue and earnings to

grow strongly at CAGR of 75% and 93% respectively over next five years.

Strong sales CAGR: Given the huge land bank of

almost 30mnsqft for developing mid income projects

and strong demand from the rising middle class, we

expect ARIL revenue to post a strong CAGR of 75%

over FY13 -FY18E.

PAT to show strong CAGR: We expect the company to

report strong earnings CAGR of 93% over FY13-FY18E

backed by robust top-line growth and stable EBITDA

margin likely over the next five years.

Net Sales Trend PAT & PATM Trend

Source: Company, KSL research Source: Company, KSL research

Margins likely to sustain: Margins are expected to improve from 25% to 60% mainly because of higher revenue

contribution from the upcoming mid income project which is a high margin business.

EBITDA & EBITDA Margin Trends Cost & EBITDA Break Up

Source: Company, KSL research Source: Company, KSL research

47 50

914

1,125 1,219

1,344

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427

17.5 16.9

38.0

33.2 31.6 31.8

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PAT (INR Mn) PAT M (%)

25.2 26.0

61.3

54.5 52.0 51.8

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0%10%20%30%40%50%60%70%80%90%100%

FY13 FY14E FY15E FY16E FY17E FY18E

Other Exp % Staff cost %

RM % EBITDA Margin

Khandwala Securities Limited 5

Return ratios to improve over FY13-FY18E: With

improving financials over FY13-18E we expect

company to report strong ROCE of ~34% over largely

driven by robust top-line growth and strong EBITDA

margin.

Debt to Equity at comfort zone: The D/E ratio

stands at 0.85x in FY15E which looks quite

comfortable given the capital intensive nature of the

industry. Further with improving sales and profits

the D/E ratio is expected to ease significantly at 0.18x

levels.

ROE & ROCE Trend (%) Debt/Equity (x)

Source: Company, KSL research Source: Company, KSL research

0.1

10.1

20.1

30.1

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FY13 FY14E FY15E FY16E FY17E FY18E

ROE ROCE

0.48

0.82 0.85

0.43

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D/E (x)

Khandwala Securities Limited 6

Peer Comparison Company Name

Year Sales (INR mn)

Opt Profit

Net Profit

EPS EBITDA (%)

PATM (%)

ROCE (%)

ROE (%)

TTM P/E

TTM EV/EBITDA

(x)

P/BV

Aricent Infra 201303 47.27 11.91 8.22 0.30 25.20 17.38 3.07 4.43 450.95 440.76 306.70

HDIL 201303 10252.39 13134.45 735.65 1.75 128.11 7.18 0.71 5.46 0.19 0.00 4.99

Kolte Patil Developers

201303 7274.80 2285.89 1239.12 14.18 31.42 17.03 17.39 24.25 0.71 4.14 2.14

Sobha Developers

201303 18645.41 5537.70 2170.59 22.15 29.58 11.60 10.50 14.64 1.32 12.96 7.25

Unitech 201303 24445.88 5178.16 2041.54 0.80 21.03 8.29 1.69 2.41 0.32 12.72 18.79

Valuation and Outlook

A real estate company generates revenue streams from its various assets at different points in time. Since a land bank is developed over a period of time and the resulting assets are sold over a period of time, the time value of cash flows (both incoming and outgoing) needs to be considered. Also, properties generate income by way of sale of property hence; we use DCF to arrive at the rightful valuation. At CMP of INR.93, the stock is trading at PE 12.1x FY15E and EPS of INR 7.8.The Company has good revenue visibility hence we have used the DCF valuation methodology with an explicit 10 year forecast period to arrive at the rightful valuation. We value ARIL at a 1 year forward DCF value and assigned a BUY rating to it with a target price of INR 175 with an upside potential of 85%.

Valuation

Cost OF Equity & terminal Growth rate

Risk Free rate 8.5%

Beta 1.1

Market Risk Premium 5.0

Cost of Equity 12.3%

Terminal Growth rate 3

Particular (INR mn) Amount

Sum of present value of cash flows to firm 4410.4

during the explicit 10 year forecast period of FY15E- FY24E (A)

Discounted terminal value (B) 4829.1

Firm Value (A+B) 9239.4

Less- Debt 425.12

Equity Value INR mn 8814.3

No. of shares (in mn) 54.8

Equity value per share (in INR) 160.5

1 year forward DCF value per share (in INR) 175

Target price per share for ARIL (in INR) 175

Investment concerns Slowdown in real estate market: Currently, real estate scenario in India, especially in Mumbai, is quite stable. The absorption rate after falling considerably in March 2012 has improved in March 2013. However if developers do not consider price reduction we may once again see further slowdown which will have negative impact on the real estate companies. With property prices stagnation spreading in all directions, real estate in India is undergoing realignment. The real estate market in Mumbai has been on a slower lane for a long time due to delay in project approvals. There are multiple no objection certificates that are required from Environment Ministry, High-rise committee and the Municipal Corporation to clear a project plan, and the process is tedious. Approvals have been slow over the last 1-2 years. The Maharashtra Government is looking to fast track the project clearances which can be positive for the market However; the growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector.

Khandwala Securities Limited 7

Consolidated Financials (Y/E Mar)

P&L (INR Mn) FY13 FY14E FY15E FY16E FY17E FY18E

Net sales 47 50 914 1,125 1,219 1,344

Total exp 44 45 364 521 594 657

EBIDTA 4 5 551 604 624 687

Depreciation 0 0 32 44 54 62

EBIT 4 5 518 559 571 625

Interest 0 1 16 19 12 4

Other income 8 8 10 9 9 9

PBT 12 12 511 550 568 630

(-) Tax 4 4 164 176 182 202

PAT 8 8 348 374 386 429

Balance sheet (INR Mn) FY13 FY14E FY15E FY16E FY17E FY18E

Share Capital 275 275 275 275 275 275

Total Reserves (7) (0) 226 490 741 1,019

Net worth 268 275 500 765 1,015 1,294

Secu. Loans 0 96 296 246 146 0

Uns. Loans 129 129 129 79 0 0

Total Debt 129 225 425 325 146 0

Minority Int 9.09 0 0 0 0 0

Total Liability 406 500 926 1,090 1,161 1,294

Net Assets 324 340 588 644 690 728

Investment 6.4 6.4 6.4 6.4 6.4 6.4

Sundry Debtors (1) 1 125 170 200 239

Inventory (0) 0 751 925 1,002 1,104

Cash and Bank 3 82 (28) 51 53 107

Other CA 146 146 146 146 146 146

Loans and Advance 62 62 62 62 62 62 Total CA 209 291 1,057 1,353 1,463 1,659

CL 126 129 626 771 835 920

Provisions 8 10 100 143 163 180

Total CL 134 138 726 913 998 1,100

Net CA 76 153 331 440 465 559

Total Asset 406 500 926 1,090 1,161 1,294

Cash Flow (INR Mn) FY13 FY14E FY15E FY16E FY17E FY18E

Net CFO 199.6 5.0 92.3 387.1 414.2 448.3

Cash Flow Invest. (320.0) (20.0) (280.0) (100.0) (100.0) (100.0)

Cash Flow Financial 120.8 94.0 77.9 (208.3) (312.7) (293.4)

Net Cash 0.4 79.1 (109.8) 78.8 1.5 54.9

Key ratios FY13 FY14E FY15E FY16E FY17E FY18E No. of Share (mn) 55.0 55.0 55.0 55.0 55.0 55.0

P/E (x) 627.3 615.1 14.9 13.8 13.4 12.1

P/BV (x) 19.3 18.8 10.3 6.8 5.1 4.0

Mcap/Sales (x) 109.5 104.3 5.7 4.6 4.2 3.9

EV/EBITDA (x) 1,473.2 1,101.2 10.2 9.1 8.5 7.5

Diluted EPS 0.2 0.2 6.3 6.8 7.0 7.8

Div./share (Rs) 0.1 0.2 0.3 0.3 0.3 0.3

BV (Rs.) 4.9 5.0 9.1 13.9 18.5 23.5

EBIDTA (%) 25.2 26.0 61.3 54.5 52.0 51.8

NPM (%) 17.5 16.9 38.0 33.2 31.7 31.9

RoE (%) 3.1 3.1 69.5 48.9 38.0 33.1

ROCE (%) 3.0 2.6 57.0 52.1 49.9 49.0

Deb. T/o (Days) -11.4 10.0 50.0 55.0 60.0 65.0

Inv. T/o (Days) 0 0 300 300 300 300

D/E Ratio 0.48 0.82 0.85 0.43 0.14 0.00

Khandwala Securities Limited 8

Company Background Board of Directors

Name Designation

Mr. Dipesh harish Joshi Chairperson

Mr. Harish Narshi Joshi Director

Mr. Nitesh Dipesh Joshi Director

Mr. Tushar Vijay Patil Non Executive Director

Mr. Dhananjay Rajendra kale Non Executive Director

Mr. Narendra Pratapray Doshi Non Executive Director

Mr. Paresh Vinodray Shah Non Executive Director

Mr. Keyur Prakash Shah Non Executive Director

Khandwala Securities Limited 9

KSL Ratings

Target Price refeINR to one year unless specified;

LTP: Last Trading Price

BUY: Expected return >15%

ADD: Expected return 0-15%

REDUCE: Expected decline 0-15%

SELL: Expected decline >15%

Company Risk is based on the systematic risk of the stock. (1-year Beta)

HIGH: >1.2

MEDIUM: 0.8-1.2

LOW: < 0.8

Head Office Branch Office

Khandwala Securities Limited

Vikas Building, Ground Floor,

Green Street, Fort,

MUMBAI - 400 023.

Tel. No. +91 22 4076 7373

Fax No. +91 22 4076 7377/78

E-mail: research@kslindia.com

Khandwala Securities Limited

C8/9, Dr. Herekar Park,

Off. Bhandarkar Road,

PUNE - 411 004

Tel. No. +91 20 2567 1404/06

Fax. No. +91 20 2567 1405

Email: pune@kslindia.com

Logon to www.kslindia.com

Important Disclosure

The Research team of Khandwala Securities Limited (KSL) on behalf of itself has prepared the information given and opinions expressed in this report. The information contained has been obtained from sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, KSL or its group companies make no guarantee, representation or warranty, whether express or implied and accepts no responsibility or liability as to its accuracy or completeness of the data being provided. All investment information and opinion are subject to change without notice. Also, not all customeINR may receive the material at the same time.

This document is for private circulation and information purposes only. It does not and should not be construed as an offer to buy or sell securities mentioned herein. KSL shall not be liable for any direct or indirect losses arising from the use thereof and the investoINR are expected to use the information contained herein at their own risk. KSL and its affiliates and / or their officeINR, directoINR and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. KSL and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customeINR on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies.

The investments discussed or recommended in this report may not be suitable for all investoINR. InvestoINR must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisoINR, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall or rise against the interest of investoINR. The value of or income from any investment may be adveINRely affected by changes in the rates of currency exchange.

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