Residential and commercial real estate have witnessed considerably robust traction in the post-Covid period over the past three-four years. Across segments such as mid-market, affordable and luxury, residential real estate has taken off strongly, resulting in many companies in the space coming back strongly on the financial front after being hit by the pandemic-related slowdown.
In this regard, Arvind Smartspaces, a player focused mainly on Ahmedabad, Surat, Bengaluru and Pune – with the MMR (Mumbai Metropolitan Region) being a recent addition in its operational footprint – has been a key beneficiary of the robust housing demand across the board.
An asset-light model with good revenue share in projects, focus on the mid-market category, with moderate presence in the luxury segment as well, expertise in horizontal constructions (villas, developed plots etc) and a fairly strong balance sheet are positives for the company.
At ₹736.30, the stock of Arvind Smartspaces trades at 19 times its likely per share earnings for FY26. This relatively-low valuation multiple makes it an attractively-priced firm in the real estate space. Many key listed players in the sector trade upwards of 25 times forward earnings and the BSE Realty trades at a PE of over 45 times.
The stock price has fallen about 30 per cent from its recent highs and presents a reasonably attractive opportunity. Investors with a 2-3-year perspective can accumulate the shares of the company. Given the stock is a small-cap, a segment that is in the midst of a stiff correction over the past five months, the stock can be volatile. Hence investors can accumulate over a period of time in small quantities as and when any further corrections in the stock linked to the the broader market plays out
Between FY21 and FY24, the company’s revenues grew at a compounded annual rate of 31.8 per cent to ₹341 crore in FY24, while net profits rose at nearly 67.1 per cent annually over the same period to ₹42 crore. It enjoys an EBITDA margin as of 25 per cent in FY24, which is among the best in the industry.
FY25 has been spectacular for Arvind Smartspaces. In the 9MFY25, the company’s revenues grew 146 per cent year on year to ₹550 crore, while the net profits were up 208 per cent to ₹97 crore.
Differentiated operating model
Over the past 18 years, the company has executed 14 projects spread over 6.5 million sq ft. Arvind Smartspaces generally has a track record of delivering projects on time. About 90 per cent of its projects are residential, while the remaining is commercial.
The company mostly takes an asset-light approach to executing the residential real estate projects. About 83 per cent of its projects by value are done via joint development agreements, its platform (jointly started with HDFC Capital Advisors in 2022) and development management models.
The platform mentioned earlier was started with ₹900 crore capital and is to be used for acquisition of projects for residential development in Ahmedabad, Bengaluru, Pune and Mumbai. This platform’s revenue potential was estimated to be ₹4,000-5,000 crore over the next several years.
Only 17 per cent of the projects involve land purchase.
Due to the focus on an asset-light model, the company gets a good share of revenues generated in a project. Typically, in a joint development agreement project, Arvind Smartspaces would get over 70 per cent revenue share.
Also, it looks to launch projects in phases and targets selling 30-40 per cent of its inventory within the first six months of the launch.
Arvind Smartspaces also typically differs from many other builders, as 80 per cent of its projects are horizontal constructions (villas and developed plots), while the rest is vertical construction (apartments). The surge in the need for larger homes with working spaces spurred the demand for independent villa units in the outskirts of cities considerably.
The diversified mix of luxury (10 per cent), mid-market (87 per cent) and affordable (3 per cent) in terms of projects that are ongoing and planned as of December 2024 gives the company a healthy presence across segment, with the ability to optimise realisations.
Future potential and healthy financials
Arvind Smartspaces has seen continuous reduction in debt over the past four-five financial years and has become net debt free. From FY22, the company’s net debt (debt minus cash and cash equivalents) has been negative. As of December 2024, the company’s net debt to equity was -0.34. Thus, the firm has a fairly strong balance sheet.
The company has 35.4 million sq ft of projects ongoing and another 58.2 million sq ft planned over the next several years. Arvind Smartspaces had unrecognised revenue of ₹2,554 crore as of December 2024, thus giving it considerable visibility for the next few years.
