Whalesbook
Anant Raj Ltd has formed a committee to study the potential demerger of its data center business. This move aims to unlock value in a fast-growing, capital-intensive sector. The company stated that the scale, future growth, and capital needs of its real estate and data center segments are so distinct that operating under one entity doesn't fully reflect their potential. Separating them could allow each business to pursue independent growth, focus its management, and allocate capital more effectively.
The company’s improved financial health, especially reducing net debt to zero by FY26 from ₹1,626 crore in FY21, provides a strong basis for this separation. A successful Qualified Institutional Placement (QIP) of around ₹1,100 crore also appears to have boosted investor confidence. The appointment of Anish Sarin, grandson of founder Ashok Sarin, as a Director further signals a focus on leadership for this strategic shift.
Strong Financial Performance Fuels Growth
Anant Raj ended FY26 with strong results. Net profit rose to ₹557.02 crore from ₹425.82 crore in FY25, while total income increased to ₹2,579.08 crore from ₹2,100.28 crore. This performance shows increased operational efficiency, with EBITDA growing 35.94 percent to ₹723.15 crore, widening the profit margin to 28.04 percent. In the fourth quarter of FY26, net profit grew 25.19 percent to ₹148.71 crore on income of ₹675.41 crore.
The company's balance sheet has significantly improved. Net debt was eliminated by FY26, down from ₹1,626 crore in FY21. Dividend payouts also increased, reaching 50 percent of face value in FY26. Total assets grew to ₹5,590.55 crore in FY26 from ₹4,346.27 crore in FY25. With cash and cash equivalents at ₹806.90 crore, the company shows enhanced financial stability. This strong financial position is crucial for supporting the separate capital needs of a demerged data center business.
Focus on the Booming Data Center Market
The proposed demerger aligns Anant Raj with the rapid growth of India's data center market. This sector is expected to reach approximately USD 2 billion in capacity by 2026 and is attracting major investments. India's data center market is projected to expand from an estimated USD 10.8 billion in 2026 to USD 36.6 billion by 2035, driven by digitalization, AI, and edge computing.
Anant Raj currently has 6 MW of operational data center capacity and plans to reach 357 MW by 2032, requiring a planned investment of ₹20,000 crore. Separating this business could enable specialized funding and strategic partnerships suitable for the data center industry, potentially speeding up Anant Raj's expansion and market reach.
Market Valuation and Sector Outlook
Anant Raj Ltd's stock is trading around ₹498-₹502, with a market capitalization between approximately ₹17,300 crore and ₹19,400 crore. Its trailing twelve months (TTM) Price-to-Earnings (P/E) ratio is between 32x and 35x, indicating strong investor expectations for future growth. The Indian commercial real estate market is also growing, projected to reach USD 281.65 billion by 2034. However, a recent government advisory encouraging work-from-home could affect office rental yields.
The data center segment, however, is largely unaffected by work-from-home trends and benefits from increasing data consumption and digital initiatives. Unlike the real estate sector, it doesn't face these particular headwinds.
Potential Challenges and Risks
While the demerger offers strategic advantages, potential risks exist. Executing a demerger is complex, requiring careful planning and regulatory approval, which can lead to delays or unexpected costs. The data center market is highly competitive, with significant investments from global players, which could pressure profit margins for smaller companies.
Anant Raj's real estate business faces market cyclicality, and the remote work advisory might impact future office leasing demand and rental income, though its diverse portfolio could help mitigate some of this risk. The company has zero debt, but expansion plans for data centers will require substantial new capital. Past corporate restructurings, including amalgamations and demergers between 2018 and 2020, show a history of complex corporate actions.
One analysis shows the company has had a low return on equity of 10.2% over the last three years, a figure investors will watch as it invests in new growth areas.
Analyst Outlook and Future Projections
Analysts have a positive outlook, with a consensus 'BUY' rating and an average price target of ₹731.50, suggesting a potential upside of over 45% from current levels. Analyst price targets go up to ₹800. Nomura previously initiated coverage with a 'Buy' rating and a target of ₹750. Infomerics has upgraded its rating to 'A- Stable'.
Earnings forecasts indicate continued growth. EPS is expected to rise to ₹15.81 for FY26, up from ₹12.44 in FY25. Revenue is projected to grow at a 14% compound annual growth rate (CAGR) over the next two years, while EPS is forecast to increase by 32.4% annually, outpacing the broader real estate industry. Return on equity is anticipated to reach 15.8% within three years. These projections, combined with the planned demerger, position Anant Raj Ltd for a potentially value-unlocking phase.