Price Target: S$0.77
Steady performance masked by challenging FX
AIT reported 1Q14 DPU of S1.14¢ (-5% Y/Y) driven in part by 2% YY currency depreciation. In INR terms, DPU was flat Y/Y at Rs0.51/unit, given a higher capital base. NPI growth of 6% Y/Y was aided by lower operating and utility expenses. NAV stood at S$0.6 (Rs28) per unit.
•Near-term volume growth visibility is strong: AIT has two buildings completing over the next six months in Aviator (Bangalore, expected Dec-13) and Avance (Hyderabad, expected Jun-13), totaling 1.3 msf, which should add 18% to the overall portfolio. The full impact of these building leasings will likely flow through F15 onward. On Avance, AIT currently gets a nominal yield on the advance it had given for construction. As the building leases (41% leased currently), this will keep being converted to equity, which should have a higher yield. In Bangalore, while Aviator is currently just 26% leased, given the micro market trends, we expect take up rates for the building to improve substantially once it reaches completion levels.
•Interest in domestic rental yield assets has substantially improved: In India over the last 12 months, there have been major transactions in buyouts of income-producing office space at yields of 10-10.5%. AIT, while represented in such transactions, has not closed anything apart from the Hyderabad buyout last year. Office rents in most markets have been generally depressed over the last four years, and the cost of financing of local developers still elevated at 14-16%. Hence, while we agree with management’s philosophy of not chasing acquisitions for the sake of it, we think it is possible for AIT to pursue a more aggressive plan to build out its portfolio, especially as some of its core markets, i.e., Bangalore, remain very attractive, and it is completely unrepresented in the bigger markets of NCR and Mumbai.
•Investment view: AIT currently trades at a FY14E EV/EBITDA of 12.5x and FY14E dividend yield of 7.4%. Our new DCF-based Mar-14 target price is S$0.77 (previously Mar-13 PT of S$0.84). We remain Neutral in light of FX volatility and the recent rise in domestic yields.
Price target and valuation analysis
We rate Ascendas India Neutral with a DCF-based Mar-14 PT of S$0.77 (based on a COE of 12.5%). We factor in a SGD:INR FX rate of Rs46.