The Hindu Business Line : Ansal Housing and Construction: Buy

Rich land bank and the large number of projects on hand add visibility to earnings growth over the next couple of years. IT and BPO companies have underpinned the demand for commercial property.

Projects in hand at over Rs 2,500 crore
Townships to boost revenues
Fluctuation in property prices-a risk

Robust demand for high-rise apartments as well as independent houses offers revenue visibility. - S. Siva Saravanan

Ansal Housing and Construction (Ansal Housing) appears well placed to capitalise on the surging demand for real-estate in residential, commercial and retail spaces.

A valuable land bank, its presence in diverse markets and high earnings visibility from existing projects are key positives for the company. At about 12 times its expected FY-07 earnings, the company trades at a significant discount to peers such as Mahindra Gesco Developers and Unitech.

Volatility in asset prices will be a major risk factor for real-estate players. Investors not averse to this risk may consider investing in Ansal Housing with one/two-year perspective.

Ansal Housing has a predominant presence in North India. The company designs, develops and markets residential buildings and townships, commercial and retail spaces. Residential projects account for 80 per cent of revenues.

Revenue/Margin visibility

Ansal Housing has on hand worth over Rs 2,500 crore. These projects are likely to be converted into revenues over the next five years. Risks related to development of land for projects are mitigated by the fact that the company has a bank of about 1,200 acres across various regions.

Ansal Housing's operating profit margins rose to 19 per cent in FY-05 against 13 per cent in FY-04. This was due to a surge in activity in the commercial building space. An increase in corporate office space absorption in the National Capital Region (NCR) coupled with a rise of lease rent in Delhi, Noida and Gurgaon improved the operating profit margins. With a huge land bank, the company's operating cost is also likely to be protected from any shoot-up in land prices.

Townships, the key

Ansal Housing has ventured into developing integrated townships in Delhi and Tier-II cities of Haryana and Uttar Pradesh. With land acquired at attractive rates, the company has an edge. As a number of domestic and MNC players across industries are moving to Tier-II cities, the demand for such townships is likely to be on the rise. Ghaziabad, Meerut and Greater Noida are a few of the areas where the company's strategy has worked well.

In the residential space, an increase in job creation and income coupled with longer, flexible and tax-saving home mortgage products have triggered the current housing boom. With a well-established track record in the housing segment, Ansal Housing is capitalising on the current demand for high-rise apartments as well as independent houses. Ongoing negotiations with foreign real-estate players may lead to tie-ups. This is likely to increase the company's ability to handle more projects and also boost its technical qualification.

Over the past few years, IT and business/knowledge process outsourcing companies have underpinned the demand for commercial property in India. The increased demand for space by hypermarkets and shopping malls and a possible entry of Wal-Mart and Carrefour over the next few years may well result in a continuing phase of favourable business environment. The potential in the sector has driven private equity funds to launch exclusive real-estate funds.

Ansal Housing is now seeing increased activity in its commercial division and has already forayed into malls and retail spaces in North India. This is likely to pave the way for more projects in these spaces.

Risks

If the asset prices held by Ansal Housing take a dip, new projects may be stalled denting revenues.

While the company holds a strong foothold in the NCR it faces stiff competition from bigger players such as DLF and Ansal Properties and Infrastructure. This may hamper geographic diversification. While steel prices have stabilised, cement prices remain firm. Any hike in the price of key raw materials can hurt margins.

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