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Anant Raj – A deleveraging play in the NCR real estate market

Updated: Sep 29, 2023

Company Name – Anant Raj Limited (Anant Raj)

Current Share Price – INR 169 (June 19, 2023)

Market Cap – INR 5,484 cr


1. What is interesting about the stock?

The National Capital Region (NCR) owes its origins to a fortuitous meeting between Rajiv Gandhi and KP Singh, the Chairman and CEO of DLF Limited, on a hot summer day in 1980. This encounter on a highway between Faridabad and Gurgaon triggered a series of events that led to the end of government monopoly over real estate development and the entry of private players in the newly formed NCR. India's organized real estate development sector has had a turbulent history, but it has recently experienced significant growth.

NCR has emerged as one of India's largest real estate markets thanks to increasing metro connectivity, a booming IT industry, and the rise of affordable micro-markets. Anant Raj Limited (Anant Raj), which began as a construction company for government projects in 1969, is now a prominent player in the region, focusing on Gurugram, a relatively new addition to the NCR real estate market.

During the period when the Delhi Development Authority (DDA) controlled real estate development in the NCR, Anant Raj acquired large tracts of inexpensive land throughout the region. Then, in 1990, when private players began receiving licenses to develop real estate projects, Anant Raj ventured into commercial real estate development, using its vast land bank of 5 million sqft. As the lease income from commercial real estate slowed by 2010, Anant Raj saw an opportunity to diversify into residential real estate, driven by increasing urbanization and the subsequent demand for housing. Today, in addition to a couple of affordable housing projects in Neemrana and Tirupati, Anant Raj is developing a 200-acre residential township in Gurugram and using its substantial commercial land holdings to enter the data center construction business, capitalizing on significant tailwinds in the sector.

Major Projects and Understanding the growth levers

1. Residential Segment

Anant Raj is currently developing a prestigious township spread over 200 acres in Gurugram Sector 63A. With a strong focus on expansion, the Company is in the process of acquiring an additional 50 acres of land to further augment the township. The Company has already completed the development and sale of 60 acres of land under the project "Anant Raj Estates" under which it has sold plots, villas, and floors.

Additionally, Anant Raj has entered a joint venture with the Birla Estates for the development of "Birla Navya" which is spread over 43 acres. While the first two phases of Birla Navya have been completely sold out, the third phase has been 60% sold out as of March 2023. Anant Raj plans to launch the fourth phase of the project during this fiscal year, which is expected to sell out quickly due to the rapidly increasing demand for premium homes in the NCR region. Overall, the company expects around INR 750 cr of revenue to come from this project.

Another project launched in 2022 is "Ashok Estates," spanning 20 acres of land. Anant Raj has already sold 50% of the inventory for this project. Ashok Estates primarily focuses on selling plot parcels, leading to faster realization of cash flow with lower capital expenditure. The total revenue potential from this project is expected to be INR 1,000 cr.

There are two major projects in the development pipeline. Firstly, based on the management's estimates, Anant Raj Estates is set to expand by 11.8 acres, with a projected revenue potential of INR 1,700 cr upon full booking. Secondly, there is an ongoing group housing project in collaboration with a Chennai-based firm, encompassing 5.5 acres within the township, which is proposed to launch in Q2 of FY24. In total, the management intends to develop and monetize 4.5 million sqft of residential township over the upcoming 5 years.

Anant Raj has also experienced the benefits of the rising property prices in the NCR region over the past year. Birla Navya initially launched at a rate of INR 10,500/sqft, has witnessed a substantial increase in prices to INR 18,000/sqft. The management believes this indicates a stable demand from homebuyers in the region, as 70% of their sales are direct to end-users, suggesting that the high prices are likely to be sustained in the near term.

2. Commercial Real Estate Segment

Anant Raj boasts an extensive land bank of 5 million sqft in the Delhi NCR region, exclusively dedicated to commercial real estate. Currently, approximately 20% of this land is leased out, generating an annual revenue of INR 50 cr. Among their notable developments are Stellar Resorts, Hotel Be La Monde, Karol Bagh Mall, Joy Square Mall, service apartments, and tech parks. The Company is developing another 7 million sqft. of commercial real estate in Chhatarpur with a focus on the hospitality sector. All these properties are strategically located in prime areas. Moving forward, Anant Raj’s commercial development plans prioritize two thriving sectors in India: data centers and warehousing, recognizing these industries' immense potential and growth opportunities.

Data Centers - Anant Raj has outlined its plans to expand its data center capacity by 300 MW across three tech parks located in Manesar (50 MW), Rai (200 MW), and Panchkula (50 MW). The initial phase of development is currently underway at the Manesar Tech Park, where the company aims to generate revenue from 21 MW within the next year and plans to increase the capacity to 50 MW in the next 2 years. To assist in acquiring clients, Anant Raj has partnered with RailTel and TCIL. Once the facility is fully operational, the company anticipates earning a monthly rental income of INR 85-90 lakhs per MW. Importantly, Anant Raj's management has emphasized that the free cash flow generated from the 21 MW capacity will be utilized to finance the subsequent phase of development, without relying on additional leverage.

Warehousing - Anant Raj has ambitious plans to develop warehousing projects spanning 83 acres of freehold land across 6 sites in Delhi and Haryana within the next 2-3 years. The Delhi NCR region continues to lead as the fastest-growing market for warehousing space in India, with a notable 19% absorption rate in the first quarter of 2023. This impressive growth can be attributed to several factors, including the increasing presence of e-commerce, a growing demand for cold chain networks within the food and pharmaceutical sectors, and a significant boost to domestic manufacturing.

Why invest in Anant Raj?

  • Management Commitment toward debt-free status by FY25

Anant Raj has consistently decreased its debt levels since 2018 (the D/E ratio decreased from 0.7x to 0.4x). In FY23, the company reorganized its debt through a partnership with Apollo Global Management, a prominent PE firm in the US. Consequently, the cost of debt has been reduced from 20% to 13.7. The Company's objective is to attain a debt-free status within the next 2 years, leveraging the monetization of its residential projects and the revenue generated by the data center business.

  • Revenue Visibility for the next 2-3 years with a diverse portfolio of assets

The management has demonstrated a prudent capital allocation strategy by focusing on high-value-adding sectors within the real estate market. Anant Raj’s major advantage in this segment lies in the availability of inexpensive landholdings in prime locations. Constructing a Tier 3 data center in Manesar would have incurred a cost of INR 52-58 crores/MW, but Anant Raj was able to leverage its existing floor space and execute the project at half the cost, thereby reducing the breakeven period to 3 years based on a projected EBITDA margin of 75%. Anant Raj will need approximately INR 1,150 cr of capex over the next 2 years to achieve 50 MW capacity. It has already established a monetization plan for its residential real estate assets valued at INR 3,000-4,000 cr which will be used to fund the data center capex and debt repayment.

2. Key Historical Financials

  • While FY20 and FY21 were affected by the pandemic, Anant Raj showed a strong recovery in the following 2 years with revenue almost quadrupling in this period backed by the strong rebound in residential real estate sales.

  • The EBITDA margins have also improved to over 20% with Q4FY23 clocking in a margin of 26% boosted by the revenue recognition of Ashok estates which has high EBITDA margins. Going forward, margins are expected to improve as a contribution from the data center business starts coming in with a 75% EBITDA margin.

  • Cash Flow from Operations has been lumpy as is expected from a residential real estate business. Again, this factor is expected to improve as the company starts receiving a steady income from the data centers and warehousing businesses.

3. What is my view on Company valuation?

  • The Company has shown a big runup over the past 1 year giving almost 300% returns to its investors as the market rewarded Anant Raj for its sales growth as well as its foray into data centers.

  • Currently, the stock is trading at an EV/EBITDA value of 27x. Anant Raj’s valuation is less than that of its major peers such as DLF (59x) and Godrej Properties (47x) but higher than Oberoi Realty (17x), Phoenix Mills (19x), and other South India players like Prestige (12x), Brigade (17x) and Sobha (15x)

  • So, the valuation seems to be expensive especially as the ROCE/ROE of the Company is poor.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • The primary risk in any real estate business is the inability to complete projects within the designated timeframe. Although Anant Raj boasts a good track record in delivering residential properties, data centers, and warehousing are relatively new sectors, ensuring timely project launches in these areas is a key monitorable.

  • Sales growth in the past 2 fiscal years received a boost from escalating property prices in Delhi NCR. Anant Raj anticipates the continuation of these elevated rates, but any decrease in demand or decline in prices may impact the company's future strategies.


About the Author

I am an MBA grad from the Indian Institute of Management, Bangalore, and currently working as a corporate finance specialist in a technology-based startup. I have cleared all 3 levels of CFA, US. I am an avid reader of businesses and like to analyze emerging trends in various sectors and macroeconomy.


I have had no stock, option, or similar derivative position in any of the companies mentioned for the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.



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