Smallcap Hunters | This low-cost realty player of MMR looks poised for takeoff

is a real estate company with a predominant focus on affordable and mid-income housing, which comprises 96 per cent of its portfolio. The group has a history of having delivered over 10,000 homes covering 8 million sq. ft. space across 59-plus projects over the past two decades.

Currently, the company has about 12,000+ homes under construction with an area of 11 million sq ft. and there are 17+ projects under construction in high growth regions like Mumbai MMR (Navi Mumbai & its peripheries) and Jodhpur.

The company’s land bank is around buildable 9.5 million sq ft, which can be to a tune around 50 acres with ready-to-move-in inventory worth around Rs 100 crore. Arihant has a clean track record with no default in the past. Plus, HDFC is the banker for the company, requiring it to follow the strictest level of due diligence. This shows the management’s ability, quality and strength of the business.

The real estate sector is on the cusp of a revival due to the price correction, rising income levels, lower home loan rates and all-time high property registrations. Affordability of residential homes have become favourable owing to low mortgage rates and stable prices.

MMR is considered the most attractive real estate market among the Top Seven Indian cities, having the largest share of supply and absorption. Navi Mumbai and MMR will gain huge traction after the completion of Mumbai Trans Harbour Link in 2023, which is the longest sea bridge ever to be created in India’s construction history connecting the mainland Mumbai to Navi Mumbai, reducing the current travel time of 2.5 hours to 15-20 minutes.

Arihant has around 10 per cent+ market share in the entire Navi Mumbai region and the MMR region. The company has a strong pipeline of projects and has successfully added more in FY21 despite the Covid pandemic. Its current pipeline of projects is 1,200 units, while 2,900 units are under development and planned to be launched, making it a total of 4,100 units.

The projects in the pipeline offer total cumulative estimated revenue potential of Rs 5,900 crore and an estimated cumulative net profit of around Rs 1,000-1,200 crore over the next 5-7 years.

With all the growth parameters being in favour of the company, there are always certain types or risks involved in the investment such as less demand leading to inability to absorb the supply, increase in cost of manpower and construction materials, unanticipated delays in project approvals and any unforeseen government policy.

The company has an ambitious target of doubling the business and revenue potential from its projects and new acquisitions over the next few years. They can grow 30-40 per cent CAGR with existing projects, and if they get capital infusion then they can grow further. Ebitda margins would be around 20-22 per cent with 10-11 per cent net profit margins.

Arihant seems well placed in comparison with its peers in terms of long-term prospects such as low market-cap/sales, less working capital days and high sales growth along with high promoter holding of 74.3 per cent, which shows confidence in a business like real estate, which is highly capital-intensive in nature.

(DISCLAIMER: The writers are individual investors. They along with their family members may have positions in the companies discussed above. This writeup is for educational purposes and is not investment advice. Please consult your investment adviser (in case you plan to invest), who will be able to guide you based on the suitability of your risk profile.)

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