Multibagger Smallcap Stock Book Profit At 25% Absolute Return Since January 2022, Buy: Sharekhan

Sharekhan in its recent report has recommended 'buy' the stock of Arihant Superstructures Limited (ASL) for a target price of Rs 225 apiece. Considering the given estimated target price, the stock is likely to gain 4% if the stock of the company is purchased at the current market price. ASL is a small cap Real Estate sector company having a market cap of Rs 895.44 crore.

Stock outlook

The current market price (CMP) of the ASL stock is Rs 217.70 apiece on BSE at the time of writing. On BSE, the recorded 52 week low level of the stock is Rs 102 apiece and the 52 week high level is Rs 230.85, respectively.

Returns on investments over the past 5 years

Over the week, the stock surged 1.68%. The stock in the past 1 and 3 months, surged nearly 22.89% and 59.55%, respectively. In the past 1 year, the stock has given 94.16%. In the past 3 years. Over the past 3 years, the stock has given a multibagger return of 626.5%. However, it gave 18.1% positive return in past 5 years.

Scaling up sales bookings

ASL is eyeing a growth of over 40% y-o-y for FY2023 at Rs. 1,100 crore. It has lined up key projects for launches including Titwala (October launch, sales potential of Rs. 220 crore), Shilphata (Q4FY2023 launch, Rs. 400 crore) and opening up of sales in existing projects viz. Amisha (Taloja), Anmol (Badlapur), Arshiya (Khopoli), Aloki (Karjat), Aspire (Panvel) and Aakarshan (Taloja). Over a longer term, it expects to scale up its sales booking volumes from 1.38 msf in FY2022 to 2-2.1/2.5/3 msf in FY2023/FY2024/FY2025.

Faster execution and BD opportunities

ASL has been gearing up its execution capabilities with large contractors getting onboarded over one to one and half years for manpower availability. A few contractors have undertaken subcontracting work for larger players like Godrej Properties. It target to scale up its execution capabilities from 1 msf p.a. currently to 2 msf by FY2024. On business development (BD), it continues to scout for proposals in the region between Panvel and Thane. It remains open for JV/JDA model for projects having sales realization of over Rs. 6000psf while below that it would prefer outright purchase.

Debt reduction

The company expects secured financing to come down each quarter. Repayment of HDFC's debt (~Rs. 120 crore as on Q1FY2023) has started and will be fully repaid by December 2023. Currently, it has utilizing construction financing for two projects only. It does not have plans to raise funds through QIP as of now as it has been using Rs. 45 crore (@16.43% interest rate) from ICICI Ventures for business development. Additionally, it expects to repay promoter loan (~Rs. 150 crore at 13% p.a. interest rate) over 3-4 years as cash flows increase.

Book Profit at 25% absolute return since January 2022, buy for a target price of Rs 225

ASL has given a handsome return of 25% since we initiated a viewpoint coverage on the stock dated January 5, 2022 led by strong sales bookings over the past two quarters and new business development. Its leading position in the Mumbai Metropolitan Region (MMR), especially in the affordable housing segment, places it in a sweet spot to benefit from strong tailwinds in this segment. It is expected to scale up sales booking and execution run-rate over the next two to three years. However, the stock is currently trading at a P/B of 2.9x on FY2024 earnings, which we believe factors in the expected scale up of operations leaving limited upside potential. Hence, we advise investors to book profit at this juncture.

Key Risks

According to the brokerage firm, the key risks would be, "sharp pick-up in sales booking, execution run-rate and new business developments are key risks to our call."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.