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Archives : Old artciles

Wednesday, November 28, 2007

Grauer & Weil (India):Not just the land bank play

Some land bank stories still available at market.Let me present you them.When the market realises these stories,the value can be tremendous.It would be prudent to note that the below mentioned scrip is not just a land play.The company posses decent fundamentals, solid prospects,bright outlook and huge potential.


Name:Grauer & Weil (India)Ltd
Code:505710


Story:In 2000, company shifted its factory from Mumbai which gave it 10 acre surplus land.Company decided not to sell it. Instead, develop it and lease the space. Company had no background in property development and an American Firm called was hired for designing the Mall. Company already developed 1,25,000 s.f. Shoppertainment Mall. Out of it, 5000 s.f. is occupied by company itself, 67,000 s.f. is leased to Big Bazaar and 37,000 s.f. to Cinemax. This space was leased at just Rs. 36/- per s.f.. Strategy was to start off with big names to pull the crowd and then attract other tenants who will be willing to pay higher rent (present lease rate in this area are Rs. 100-110 per s.f.).

Under Phase-II, Company is developing another 3.00 lakh s.f.. Construction is going at rapid pace and it is likely to be completed by April '08. Company is likely to spend 55 crs. for construction of the same to be generated through borrowings and internal accruals. Company is trying to replicate a Mall called 'Columbo' in Portugal. Company can earn around Rs. 30 crs. as lease rent from Phase-II.

Thereafter, company will have another FSI of 3 lakh s.f.. Once Phase-II is completed, company will start developing balance 3 lakh s.f. under Phase-III likely to be completed in 09-10.

Valuation of Property Business:

a) Going rate of property in this area are Rs. 10,000/- which means existing 1.25 s.f. space is worth Rs. 125 crs.
b) 3 lakh s.f. under construction is worth Rs. 300 crs.

Lease Income:

1) Existing 1.25 lakh s.f. will come for renewal in 2010. Hence, for next 2 years, this property will give income of 5.40 cr. p.a.
2) 3 lakh s.f. of Phase-II should fetch annual lease rent of 30 crs.
3) Similarly, Phase-III should fetch additional lease rent of nearly 60 crs.

IT MEANS, ONCE ALL 3 PHASE ARE COMPLETE, COMPANY CAN EARN ANNUAL LEASE RENT OF100 CRS. AFTER DEDUCTING MUNICIPALITY TAX, MAINTENANCE COST, DEPRECIATION, INTEREST ETC., COMPANY SHOULD HAVE PBT OF MINIMUM 75 CRS. EACH YEAR.


a)Company has already started construction of a new factory in Jammu with capacity of 4000 TPA. This Plant is likely to start production within 6-8 months. Here, cost of production will be lower and significant savings in taxes also.

b) Company has 3 lakh s.f. FSI left for Phase-III. However, as per recent Govt. Notification, FSI can double if, it is used for I.T. Park. Hence, most likely, company will make I.T. Park of 6 lakh s.f. Such a project may cost 130-140 crs. but it can fetch lease rent of more than 60 crs. and market value of more than 600 crs.

Net Value: A conservative valuation of chemical business would be 1.00. Sales of chemical business which means Rs. 172 crs.
Value of Property: (Phase-III not considered) @ Rs. 10,000/- s.f. works out to Rs. 425 crs. Estimated date by March '08 is 70 crs. Thus,Net Value is 527 crs.whereas market cap is just around 90 crs.



Regards,
ARUN
I can be reached at:arunanalyst@rediffmail.com

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