The Marathon Group acquired the sick Piramal Spinning & Weaving Mills Ltd. (PSWML), manufacturers of cotton fabrics, synthetic fabric and cotton yarn with mills at Lower Parel in Mumbai, Ambarnath, outside Mumbai and Surat in Gujarat. As per the rehabilitation programme sanctioned by the BIFR, PSWML’s three main divisions were demerged into 3 distinctive entities.
The assets & liabilities of PSWML as well as that of Niranjan Mills were transferred to Niranjan Piramal Textile Mills and the Ambarnath processing unit was transferred to Pyarelal Textiles in October 2001. Its third realty unit also co-opted into Ithaca Informatics Pvt Ltd to develop the property at the Lower Parel unit.
Subsequent to the restructuring, shareholders of the erstwhile PSWML were allotted one share in each of the 3 companies for every 3 shares of PSWML held by them. The name of the company was changed to Marathon Nextgen Realty Ltd.
MNRL has developed residential complexes, industrial estates, high-rises, signature homes, retail and corporate spaces catering to different lifestyles through 70 projects in India. Its ongoing projects are spread over 28 lakh sq. ft. in Mumbai.
MNRL’s lean management is supplemented by the prestigious ISO 9001:2000 certification (Quality Management Systems). One of the secrets of its success has been in acquiring the right land that ensures appreciation at an opportune time. This foresight has benefited its customers offering them convenience of location and appreciation in property value in the long run. Its acquisition of PSWML at Lower Parel in Central Mumbai in 1995 is a testimony to this as the area has turned into the fastest growing corporate hub in 2006.
In FY09, MNRL posted 32% lower net profit of Rs.41.8 cr. on 4% higher income of Rs.105 cr. and the EPS was Rs.32.5.
For Q3FY10, net profit rose 64% to Rs.39.4 cr. on 3% lower revenue of Rs.55.2 cr. For the nine months ended 31 December 2009, its net profit jumped 208% Rs.98.8 cr. on 65% higher revenue of Rs.138.3 cr. while the 9 months EPS works out to Rs.78.4.
MNRL’s tiny equity capital of Rs.12.6 cr. is supported by huge reserves of Rs.154.3 cr., which gives the share a book value of Rs.133. The promoters hold 89.2% in its equity capital, foreign holding is 0.6%, PCBs hold of 1.1% leaving 9.1% with the investing public.
Marathon NextGen was a unique product mix of high-end residential towers and two commercial projects that was well-received. Marathon NextGen Era is one of the tallest luxurious towers that offer plush apartments/penthouses with terraces and plunge pools on the 36th floor.
MNRL has entered into three joint ventures, which include the development of 3 corporate IT Parks at Lower Parel, a housing project in Bangalore and development of properties in South Mumbai and the western suburbs of Mumbai. The projects include a SEZ in Navi Mumbai, an integrated township in Badlapur near Mumbai, Commercial and residential properties in Mulund and Parel in Mumbai. These ongoing projects in and around Mumbai are spread over 28 lakh sq. ft.
The prospects of the realty sector have improved according to India's new FDI policy up to 100% investment is allowed under automatic route in townships, housing, built-up infrastructure and construction-development projects. Construction projects would include hotels, resorts, hospitals, educational institutions, housing and commercial premises. The government has also reduced the minimum mandatory area for FDI in real estate sector from 100 acres to 25 acres.
Since, the Indian economy has already recovered, there are positive signs that the realty sector is back on the growth track. Merrill Lynch forecasts that the Indian realty sector will grow from $12 billion in 2005 to $90 billion by 2015.
The rapid population growth, strong demographic impetus with young people, newer job creations, rising incomes, emergence of nuclear families, tax incentives on housing, competitive interest rates, expansion in organised retail sector, shortage of around 20 million dwelling units and the rising FDI levels in the real estate sector provide a conducive environment for investment in the housing/real estate sector for growth in a revenue and profitability.
For FY10, MNRL is likely to post a net profit of Rs.130 cr., which would fetch an EPS of Rs.103. At the current market price of Rs.380, the share is trading at a P/E of just 3.4, which gives a strong buy indication. Applying a conservative P/E of just 6 against the industry average P/E of 32 for the construction sector, will take the MNRL share price to over Rs.600. This would fetch a decent appreciation of over 60% in the medium-to-short-term. The 52-week high/low of the share has been Rs.567/91.