From Research Desk

Arihant Foundation & Housing Ltd. (Q1 F9/07 ). Result Update

Property demand in Chennai remained firm in the Oct-Dec quarter, helping AFHL book a 64% growth in revenues. The company currently has 5 on ongoing projects and has booked total sales of 0.19mn sqft during the quarter as against 0.16mn sq ft in the previous quarter. AFHL is currently carrying a Work-In-Progress inventory of Rs590mn, the sales for which should be converted over the next two quarters.

While the CBD, OMR and GST rd have seen stable to rising prices, other areas like Ambattur have not picked up as well as expected. As a result majority of the company’s projects are earning gross margin in the range of 35-40%. However, the commercial project at Ambatur (approximately 55% of revenues in Q1 F9/07) grossed around 22%, pulling down blended margin to 25.3%, a drop of 114bps over Q1 F9/07. However, we expect margin to look up from third quarter as high margin project contribution increases.

In line with the company’s guidance, it has started foraying outside Chennai. AFHL has added four new projects one each in Madurai (21 acres), Vijaywada (50 acres), Poonamali high rd (5 acres) and Mall + hotel (0.6mn sq ft) on the OMR rd. We have yet to factor in these new projects in our estimates, which are likely to contribute to revenues from F9/09.

We have delayed our project completion phase in some of AFHL’s projects (no guidance from the management). As a result we have revised our revenue growth downwards by 17% each for F9/07 and F9/08, while earnings have been revised downwards only 7% and 1% in the respective years. Lower revision in earnings is on account of lower tax rate.