Mumbai, August 15, 2018: Equity99.com, a SEBI registered investment advisor has released a buy report on Bharat Agri Fert and Realty Ltd. Bharat Agri Fert and Realty, a Mumbai-based company engaged in the manufacture of fertilisers (single super phosphate) has three other divisions – realty, resorts, and pharmaceuticals. The company that was trading between130-135 for a long duration has hit a high of Rs. 184 recently and currently trading between Rs. 160-165. They suggest that it’s a short term as well as long term buy and could reach a target of Rs 409 in long term.
The company has been a Single Super Phosphate (SSP) manufacturer since inception. With a total installed capacity of 132,000 MT, the manufacturing factory is located in Wada, Palghar on company’s owned land parcel of 18.36 acres. This business contributed around 60 percent of the revenue last year financial year ended March 31, 2018, that is around Rs. 20.1 crore. Owing to normalcy in business post GST and good monsoon in Maharashtra so far, the capacity utilisation has improved drastically to 60%.
According to the report, Bharat Agri’s fertiliser business is expected to grow at a CAGR of 36 percent for next three years to Rs. 50 crore in FY21 with a positive operating margin of 7%. Favourable Policy changes will enhance the production of SSP. Implementation of Nutrient Based Subsidy (NBS) policy, inclusion of sulphur under NBS, encouragement of micro-nutrients fortified with zinc and boron etc. has led to enhancement in production of SSP, which can be seen from higher capacity utilisation of 60 percent in the current financial year (FY18-19). Subsidised fertilisers fortified with zinc and boron is eligible for additional subsidy of Rs. 500 per tonne and Rs. 300 per tonne respectively under NBS policy.
Bharat Agri as it owns a freehold of around 106 acre of surplus land at Wada district, Palghar. This land parcel is valued at around Rs. 106 crore on conservative basis calculated @ Rs. 1 crore/acre. This is excluding its 18.3 acre land on which it has its fertiliser factory operating and 8 acre land on which it has its resort. As of now, this surplus land is categorised under ‘Agricultural land‘. However, the company has already applied for it to be changed to ‘Non-Agricultural land‘ and expects to get the permission soon. This will be a major game changer for the company as it plans to expand its resort business once they have the approval.
Apart from this, the company also owns 6.25 acre freehold land at Majiwada, Thane. Of which Phase I project on 3 acre land is already completed. The total saleable area has been around 3.65 lakh sq.ft. It has so far sold 348 flats. Unsold stock of OC received flats will be sold in current financial year. The company has sold 3 flats in the first quarter and expects to sell the remaining 8 flats by end of this financial year. Average ticket size for each flat is around Rs. 1.30 crore for saleable area of 1111 sq. ft. Since the cost has already been recognized in previous years, the entire cash collected from sale of 11 flats will flow directly to the bottom-line in this year. Analyst Rs. 13-15 crore cash coming from unsold inventory.
Phase II to kick start soon. The company plans to launch its phase II project soon at Majivada on the balance 3.25 acre land. The company is eligible for stilt +30 floors which is pending with TMC & MOEF and will complete both buildings in next few years with 3,00,000 sq. ft. saleable area. It will have a mix of 1BHK and 2BHK, which will be completed in three years. With several new infrastructure projects, Thane has emerged as the preferred choice for any real estate investment. Besides the relative affordability factor, it offers as compared to any other area in the Mumbai Metropolitan Region (MMR), several new-age home-buyers are zeroing in on a property in this part of the Central suburbs.
Bharat Agri’s land location at Majivada is a big benefit as it is just 12 minutes away from Central Thane Railway Station and just 5 minutes away from the Proposed Kapurbawdi Metro Station. Due to this, the prices for this area have gone up by 20-30 percent in last two years despite the overall real estate market being stagnant. This bodes well for the company, as this project itself will generate about Rs. 360-400 crore of revenue for the company at prevailing market rate of Rs. 12,000 per sq. ft.
They also own a 11000 square feet place Bharat house valuing 125 crore at flora fountain area.
The 150 acre resort is just 80 kms away from Mumbai and a perfect getaway from the tussle of day to day life. The resort has 20 rooms and only caters to elite class. The average ticket size per room is around Rs. 22,000 per night for a couple. The occupancy rate is currently around 60%. With the hotel industry witnessing a tailwind, the occupancy rate is set to only improve in next 3-5 years. With the current inventory in hand, the company can generate total revenue of around Rs. 10 crore in FY19. The management has plans to increase its room strength from 20 to 80 in order to accommodate more people as it is considering introducing ‘Destination Wedding‘ as one of the major marketing strategy at the Anchaviyo Resort.
Valuation at a throw away price
With a Networth of Rs. 75.6 cr, the stock trades at 1x P/BV at cmp of Rs. 148.8. The company is at an inflection point with all its business verticals are at the cusp of massive growth. The Fertilizer business is set to do well with better capacity utilization and improved working capital cycle will lead to higher profitability. This business is set to touch revenue of Rs. 50 cr by FY21. We value this business at Rs. 75 cr at 2x sales of FY20.
The surplus land parcel of 106 acres that the company owns at Wada is valued conservatively at Rs. 106 cr. The unsold inventory of 11 flats of Phase I Majiwada project will cash in Rs. 15 cr for the company in this year. Phase II Project of Majiwada is valued conservatively at 1x sales of Rs. 360 cr. Overall, the realty business is valued at Rs. 481 cr. Coming to the Resort Business, with Hotel industry facing tailwinds, the company is well set to do a business of Rs. 10 cr this year and Rs. 13 cr next year. We value their Resort Business at 2x FY20 sales to Rs. 26 cr which is well within the average industry valuation of 3x sales. The company has no long term borrowings and Rs. 17.5 cr as short term borrowings for working capital requirements. As on March 31, 2018 the company had Rs. 5.8 cr of liquid assets.
The combined intrinsic value of all the business net of debt comes to Rs. 570 cr while the market cap for the company today is just Rs. 79 cr. This gives a potential upside of 7 times over an investment of 3-4 years. We recommend a strong buy from short term as well as long term point of view due to multiple triggers.