ValuePickr Forum

Max Ventures – A Unique Demerger Opportunity

Max towers to launch it’s 1st commercial real estate project in Noida on 12th April 2019.

Anyone staying in Delhi & nearby place pls visit as Mr.Sahil Vachani will discuss his real estate plans for MaxVIL

0c1bffb3-0ee1-4691-84da-9ae0576e5010.pdf (477.6 KB)

Max tower …

Max Group completes Rs 600 cr office building in Noida, eyes Rs 70 cr rental a year

Max Towers rental rates are 36 per cent higher than the buildings in its neighbourhood — ₹100 per sq ft monthly compared to the ₹60-70 per sq ft that the micromarket of Noida charges. Is that viable?

According to Anuj Puri, chairman, ANAROCK Property Consultants, “What can effectively work in favour of Max Towers is its strategic location, which provides easy accessibility to Delhi.” He also lists proximity to the metro station as well as the fact that it is a one-of-its-kind large commercial complex in an area that, so far, had only small office buildings. However, he does say the high monthly rentals could play spoilsport. “Despite the facilities offered, some companies prefer to stick to lower rentals.”

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Any idea, what could be the rental yield of the property…

it will be 10% of total expenditure on max tower , total cost for max tower was 600 CR, there are targeting 60 -70 CR income from this .

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The total area is 497,500 sq ft. They are targeting rentals of Rs 100 per sq ft per month. At this rental, the revenue will be Rs 60 cr at 100% occupancy. I believe the average occupancy in the first year would be much less than 100%. At 70% occupancy, the revenue will be Rs 40 cr.

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Thanks… Does the cost of 600 Cr also include the land cost or the land cost is in addition to 600 Cr…

Hi investors. I have been invested in maxvil for about 18 months now. Hold a good amount at an average price of 60. But the stock has been beaten down recklessly. I have a 36-48 month time frame with this stock. Request more informed minds to paint a picture of the future of this company. With the growing real estate portfolio, do you think 300-400 levels are possible in 2-3 years? Also, the company has zero debt and might sell their packaging business.

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Sir, it is better to have realistic expectation from market,
300 -400 levels means you targeting 10 times money from this scrip ?

Sir, 3-4 years down the line, I expect them to concentrate solely on real estate and have a portfolio of 5-6 commercial buildings. These projects can be funded by selling packaging biz and taking on some debt. What do you think about this? Mcap could be 5-6k cr. Realistic or not, I’m not sure. But at least this seems to be the plan. Analjit Singh is also looking to dispose off max India life insurance stake. If he ploughed it into maxvil, I won’t be surprised. What do you think about this…? I’m not saying these things will happen. Rather, this could be the plan. We can debate on the finer details… A portfolio of 5-6 high end commercial real estate is worth at least a billion dollars in current market. 7000 cr mcap seems like 10x from here.

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They will get only 200CR from selling packaging business, How do you expect 5-6 commercial buildings from this , max tower cost was alone 600CR.

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My advice will be to sell it for now. The stock is undervalued from a balance sheet (assets) perspective but not from an P&L (earnings) perspective. I have learned the lesson the hard way that undervaluation in itself is not going to produce returns. It has to be backed by earnings otherwise undervaluation can last a long time. You can buy it later when it turns around.

I have done some back of the envelope calculations for valuations from P&L perspective. According to this you may get no returns for the next 2 years. You will start seeing returns from year 3 onwards. This is a rough calculation only to show that you may not get any return in the next 2 years even considering all goes according to plan for the business. Please bear in mind these are rough calculations and you may change the parameters to arrive at your own valuation.

1	2	3	4	5

Area 497,500 607,500 757,500 1,000,000 2,000,000
Rent (Per sq ft) 100 120 140 154 184.8
Occupancy 50% 60% 70% 75% 80%
Revenue 30 52 89 139 355
Revenue (222 Rajpur) 40 20 - - -
Total revenue 70 72 89 139 355
EBITDA Margin 30% 40% 50% 60% 70%
EBITDA 21 29 45 83 248
Multiple 5 6 8 10 15
Real Estate Valuation 105 174 356 832 3,726

Azure stake valuation (annual growth @20%) 200 240 288 346 415

Packaging Films valuation (annual growth @10%) 200 220 242 266 293

Total (RE+Azure+Films) 505 634 886 1,443 4,433
Current Valuation 628
Multiple (Total/Current valuation) 0.80 1.01 1.41 2.30 7.06
Return -20% 0% 12% 23% 48%

PS: I’m not an investment advisor and please do your own due dilligence or consult with a registered investment advisor

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Attaching the sheet for anyone wanting to refine the calculations.Max Ventures - Analysis.xlsx (35.2 KB)

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Hi Kashif. I saw the excel sheet. Good analysis.
But I have my doubts regarding some of the values assumed.
The valuation of the real estate biz is of particular concern. I don’t think EBITDA times some multiple is the right way to arrive at a number. Take max towers for example, maxvil has no debt at the moment. The tower’s worth is 600 cr. If a year or two down the line, they want to sell it, it won’t be less than 800 cr at least. Maybe you can discount this at some %. As per your numbers, the entire real estate in year one is worth 105 cr. I do not believe this to be true.
Second, packaging films last time around was worth year sales * 1.3. Assuming yearly sales to be a 1000 cr and % holding at 50, packaging biz is worth 600 cr+
However, market is god and so, I believe all max companies are trading at a deep discount along with other small and midcap firms in the broader market. If nothing changes, I believe we are looking at at least 50% growth YoY for the next 4-5 yrs.
Looking forward to hear your thoughts on this.
Discl: Invested at average price of 60. Been invested for 18 months now. Must admit, I should have booked out when it was trading in high 90s
I’m only 3 years new in the market. Pursuing my MBA now. My estimations may not be on point. Feel free to correct me.

Regards,
S

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Regarding valuation, you are still using asset based valuation which while right from a fundamental perspective, but market is looking for earnings. Hence I would suggest you also do that and feel free to change my assumptions and arrive at your own valuation.

Packaging business was valued at 400 cr when Toppan bought it. Since then the business has shown no profits. Why would i give it any better valuation than that. How can you give a sales based valuation to a loss making company?

This is just my opinion and I may be completely wrong.

A new manufacturing line of 250 cr was commissioned and it is up and running no?
True. I agree with the packaging biz. It’s not shown a lot of profit. But asset utilization is there. Increase in oil prices has probably affected margins. Packaging films is worth at least 450 - 500 cr.
We can disagree on our approach. But, point is, earnings visibility is there and the stock is undervalued by at least 30 - 35%. So, it’s a strong buy.

I recently added some at 43. I believe that real estate is likely to deliver 50 cr annual rental yield by end of 2019 translating to ~25 cr at net profit level, which will mean about 300 cr in MCap. Rajapur sell may add some profit in coming quarters and hopefully packaging films will stabilize. Thus I believe that current valuation is close to bottom based on rational market. My average price is ~48 and I am open to holding for 5 years for 3 - 4 times return.

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Also remember, analjit Singh is booking out of max life insurance. He has said in an interview that he is looking to venture into new businesses. If he decides to pump in money into maxvil to jump start growth, that could be good.
Just ifs and buts at the moment. But something to watch out for.
Also, from the monitoring report, maxvil has approx. 100 cr of cash in the bank unutilised that it received from rights issue. Remains to be seen how this is deployed.

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Sahil Vachani: Building Max Group’s real estate dreams

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