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SENSEX: 73651.35 655.04

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Multi Baggers

Aashish Tater

5.30 AM Jan 1st 1970

CHD Developers

BSE ID : 526917     NSE ID :

RECOMMENDED PRICE 15.02

PEAK FROM RECO 21.85 45.47%

CURRENT PRICE 0.68 Resource id #18

CHD developers mainly focused as a geographical play in North India based in the NCR(Gurgaon) region. We recommend to buy the stock at CMP of Rs 15.02 and maintain a target of Rs 25-35 in the medium term.

CHD Developers

About CHD:

CHD developers mainly focused as a geographical play in North India based in the NCR(Gurgaon) region. The group is growing at a substantial pace without taking much of economic risk on their asset light model. From developing single structure the company is now focusing on developing housing complexes. The company is focusing on growth, which they have guided for 25 percent plus growth over next three years. The company has completed some prestigious projects in the past. Avenue 71, Daana Paani Karnal etc.

Key Triggers:

CHD VANN recently commenced could be a big trigger for the stock. The company is focusing on two of its projects Golf Avenue 106 and Sky One these two along with Vann can be a complete game changer for the company as this will bring them to the next league.  The company used to develop Rs 2000-3000 per square feet project and now they are focusing on higher margins as they are focusing on middle class home aspirers with avg. realization of 7000 per sq feet

The potential in the mid segment is very high and now company is focusing on integrated townships and mid segment can expand margins significantly. We did sensitive analysis for demand in the range of 6000 -8000 and it has not shown sluggishness in these regions compared to premium projects because of cost of project is going up that act as cushion. Company believes if economy improves the take off from inventory side will also be high because of close proximity to premium projects they are developing.

Project Sohna is also going to be a revenue contributor when we added all the potential revenue company is set to double the revenue over next 3 years which aligns with their guidance of 25 percent growth.

Avenue 71 has seen good return for investors and some recent developments and comments from management are definitely encouraging.

1. The company is currently developing a housing project on Dwarka Expressway comprising 600 units and a 250 acres integrated township at Karnal.

2. Company recently bought 300 crore land parcel in gurgaon

3. Company focusing on mid-segment and focusing on high margin projects integrated township.

4. As per company, its current cash flow is substantial to net off debt once project deliverables starts.

Long term focus for Investors on real estate companies: Geographical plays with smaller but stronger balance sheet have been re-rated and have generated returns compared to highly leveraged companies having presence across India. Cost of managing mid size companies and knowing the local factors is most important. We picked Kolte patil on similar logic as company focused on changing businesses i.e higher margins and scalability rather than undertaking lot of projects and resulting in cost over-run. This creates huge potential for long term investors when companies with asset back up are compared with the intrinsic value. Thus on correction people don't get skeptical because of the valuation cushion.

Valuation Call:

At 21.5 percent CAGR the company is expected to report an EPS growth of over ~38 percent over next 3 years. Based on debt retirement and focusing on the current projects and recently announce pipeline it looks an achievable target. Cement prices are expected to remain in range as well as other inputs are not going to rise substantial but higher realizations will aid to margins. We expect 300 bps expansion in margin part of which will be mitigated by working capital requirements. The company is focusing on acquiring land parcels that can generate substantial amount to bottom line in days to come. Return on equity will also improve with aided improvement in margins as net realization per square feet goes substantially higher.

At CMP of 15.02, the stock has potential to generate substantial returns from current levels. If margin expansion as foreseen happens than valuation multiples will be at par with concentrated geographical peers. Thus the stock can trade in the range of 25-35 in the medium term.

Risk and Concerns

Though we checked on project delivery and other non monetary aspects that can change projections, what we identified company having deliverables on time has always generated IRR of around 18-19 percent in the mid segment housing. It's the execution delay that creates hurdle for Real Estate companies. So far company is delivering at good run rate any delay in execution or inflation risk can hurt small companies and lead to PE contraction. However given the government is focusing on overall growth this could be a good proxy bet in the sector.

Disclosure (SEBI Registration Number for Aashish Tater: INA300001206)
 
Stock Ownership - No

Stock traded in Last 30 days (No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from chd in 12 months - No

Merchant Banking Market Making activities / projects - No

Any arrangement with co. to affect the report write up - No

Disclaimer: Aashish Tater is an investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

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