Eyeing to be in the top five league
About the stock: Aditya Birla Real Estates (CENTEX), is the real estate arm of the Aditya Birla group, having two major verticals viz. Real Estate and Paper & Pulp.
• Residential portfolio is well diversified across MMR, NCR, Bengaluru and Pune. Worli comprise more than 50% of the overall portfolio GDV.
• Two operational commercial assets of 6 lakh square feet.
Investment Rationale
• Prime Worli land parcel offer ₹ 30,200+ crore of sales potential with 45- 50% EBITDA margins: CENTEX owns 20 acres legacy freehold land and ~3.5 acres leasehold land at Worli (East) while it recently settled 10 acres land dispute at Worli (West) with Nusli Wadia. Cumulatively, we estimate the Worli land parcel has ~₹ 38.000+ crore GDV value while it has utilized ~₹ 7750 crore (Niyara project sales + value of operational commercial assets) and balance ~₹ 30,200+ crore GDV remains to be monetized providing strong pre-sales visibility over the medium term. Further, legacy land parcel and ownership of Wadia land at low cost (~8% of GDV) is expected to yield 45-50% EBITDA margins. Overall, the company’s project portfolio of ₹ 70,500+ crore GDV offer ~₹ 66,100 crore pre-sales visibility.
• New project additions of ₹ 40,400+ crore since FY24 at an average 10% of GDV provide margin/cashflow comfort: CENTEX has added 10 projects (9 outright purchase) having GDV potential of ₹ 40,423 crore for ₹ 4213 crore or 10% of GDV since FY24 till Q3FY25. The prudent land acquisition is likely to help it generate blended 25-30% EBITDA margins and 16-17% net IRR for owned projects. Further, the land acquisition has been diversified across geographies viz. MMR, NCR, Bengaluru and Pune. Consequently, it has limited geographic concentration risk and has deepened its presence in the four of the tops performing domestic regional markets.
• Brand equity, strong management team, quality land bank and divestment of Pulp & Paper business: The company benefits from strong brand recognition of Aditya Birla Group while it has set up a strong management team having prior experiences in premier realty companies such as Godrej Properties. It has a strong land bank of ~158 acres (~11msf saleable area) with a market land value of ~₹ 4000 crores. Additionally, the recent divestment of Paper & Pulp business for ₹ 3498 crore (8.4x FY24 EV/EBITDA) would increase focus on core real estate business.
Rating and Target Price
• We value CENTEX on SOTP basis valuing 1) residential projects (ongoing and upcoming) on project NAV basis 2) commercial assets on 7.5% capitalization rate 3) Paper and pulp business on ITC deal value and 4) Land bank at current land prices.
• CENTEX has witnessed ~38% correction in stock price over the trailing five months and is currently trading broadly at par to its NAV which we believe is unwarranted considering its high pre-sales growth trajectory over the next two years. We initiate with a BUY rating and a price target of ₹ 2500.
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