The Indian equity markets have witnessed some correction on account of profit booking after a big rally in 2014 and early 2015. I believe that the correction is an excellent opportunity to buy some quality Indian stock with an investment horizon of 3-5 years. This article discusses Prozone Intu Properties (PROZONINTU, Financial), a real-estate development and leasing company in India, with robust long-term growth potential.
Before I discuss the positive related to the company, I must mention here that Intu Properties PLC holds 32.38% stake in Prozone Intu. Intu Properties is UK’s largest real estate player with over 35 year of real estate development and asset management experience. Intu Properties has senior members from their team that are in the board of Prozone Intu. I wanted to make this point at the onset to underscore the fact that Prozone Intu has a strong backing in terms of expertise and potential funding.
Coming to Prozone Intu Properties, the company is involved in leasing of shopping mall space as well as development of residential and commercial space for outright sale. The best thing about the business model is that lease rental from the shopping mall space can be utilized for development of residential and commercial space that result in inflow of bulk cash.
As of March 2014, Prozone Intu Properties had one mall operational in Aurangabad (India) while the company has started two more mall developments in 2015. In addition, the company has initiated the development of residential complex in three cities and commercial complexes in two cities. The important point to note here is that the company’s revenue inflow earlier was just from one shipping mall. However, the company has initiated multiple developments in 2015 and this will translate into strong revenue and cash flow growth over the next 2-3 years.
In addition to this, the company is also planning residential complex in two locations in 2017. In other words, a bulk of the company’s development activity is likely to come over the next 2-3 years and the retail space will ensure that the company’s cash inflow is robust and stable in the coming years. Another big positive about Prozone Intu Properties is that the company’s land bank is fully paid and therefore there is no additional cost related to land procurement. The cost for the company in the coming years will be related to construction and I believe that the cost will be catered through internal cash flows (lease rentals and outright sale of residential and commercial complexes). I wanted to stress on this point as Prozone Intu Properties will not need significant debt for growth and this is a positive.
I must also point out here that Prozone Intu Properties is likely to acquire additional land parcels in the coming years to develop additional property that can bring stable lease income. To put things into perspective, the three shopping malls along would give Prozone Intu Properties an annual rental income of INR125 to INR130 Crores. As this cash starts flowing, Prozone Intu Properties will be well positioned to make some aggressive growth and expansion plans.
In conclusion, for investors who are willing to invest and hold for 3-5 years, Prozone Intu Properties is an excellent investment option and the company has the potential to provide strong portfolio returns.
