Arvind Smartspaces - Strong Cashflows To Drive Smart Growth: Yes Securities Initiates Coverage With A 'Buy'

Yes Securities Report

Arvind Smartspaces Ltd. has shown strong capability to acquire project under asset light model and quickly monetise it. Company is expected to generate net cashflow of Rs 22.7 billion over next five-seven years. However, we believe there is upside risk to our estimates.

On the back of strong demand for the residential real estate, we remain positive on the Arvind Smartspaces and value the company on SoTP based valuation, where we value the company using net present value method using 12.7% as the discounting factor (weighted average cost of capital) and assign 35% premium to factor in strong growth potential going ahead.

We initiate coverage with 'Buy' rating on the stock arriving target price of Rs 502/share.

However, we believe company might monetise its total portfolio quicker than our estimates and generate upfront higher cashflow so in ‘Bull Case’ we have discounted estimates at WACC of 10% and given higher premium of 50% to the current portfolio to arrive at a target price of Rs 586/share.

Risk and concerns:

• Our whole thesis is pivotal on the fact that demand scenario to remain stable which might not remain same.

• Business development during up-cycle tends to result in project acquisition at high land valuations.

• Inability of the company to deploy available capital from the HDFC platform.

• Leveraging strong balance sheet position in the absence of demand.

About the company

Arvind Smartspaces incorporated in 2008, is the part of the Lalbhai group which commands a legacy of 120 years. Arvind Smartspaces has presence in Ahmedabad (including Gandhinagar), Bangalore and Pune; Ahmedabad is the home turf with strong brand recall, thanks to the rich legacy.

Initially company started business with monetising parent’s land parcel but today it stands tall on its own merit by acquiring projects from a competitive market.

Arvind Smartspaces has not only acquired the projects but also shown strong capability to sell them successfully in record time. Recently, company did pre-launch of Arvind Uplands 2.0, a golf-themed plotted development, located at Adroda (Bavla), South Ahmedabad, and sold the entire four million square feet Phase-I inventory with a booking value of over Rs 3 billion in a mere three days.

Similarly, in Bangalore, company made significant inroads by selling its Greatlands project Phase-I in 10 hours and Phase-II in seven hours worth Rs 2 billion and Rs 1 billion inventory respectively.

The performance reflects the strong brand perception that Arvind Smartspaces evokes in the minds of consumers.

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