Emkay Global has maintained a 'Buy' rating on Aditya Birla Real Estate with a target price of Rs 1,750. The brokerage expects a business turnaround driven by a strengthened balance sheet after the sale of its paper division, though the company currently faces operational losses that investors should monitor.
Brokerage firm Emkay Global has maintained its 'Buy' rating on Aditya Birla Real Estate (ABREL), establishing a price target of Rs 1,750 per share. The outlook is based on expectations that the company is entering a new phase of business development, with growth in pre-sales anticipated to pick up from the fiscal year 2028 onwards.
Impact of Paper Business Divestment
The company’s financial position has seen a significant change following the divestment of its Century Pulp and Paper business to ITC Limited. This sale brought in Rs 33 billion in cash proceeds, which the brokerage views as a major positive for the company's future. With this capital, ABREL has fully redeemed its Rs 400 crore of commercial paper, effectively strengthening its balance sheet and providing the liquidity needed to pursue large-scale real estate projects. As of the current fiscal year, the company has already secured projects with a Gross Development Value of Rs 26 billion and is actively looking to add more to its pipeline.
Understanding Recent Financials
While the outlook for future projects is optimistic, the company’s recent financial results reflect the current transition phase. In the first quarter of the 2027 fiscal year, ABREL reported a consolidated net loss of Rs 66.9 crore, compared to a loss of Rs 47.3 crore in the same period the previous year. Operating performance also remained under pressure, with an EBITDA loss of Rs 55.3 crore, compared to Rs 39.9 crore in the previous year. Despite these bottom-line challenges, there were some positive signs in operations, with cash collections from projects reaching Rs 7.1 billion, marking a 31% increase compared to the previous year.
Key Risks to Consider
Investors should note that the company is currently relying heavily on future business development to drive growth. The shift from a loss-making operational structure to a profitable one depends on the successful execution of its new project pipeline. This comes with inherent risks, including the possibility of project delays or cost increases, which are common in the real estate sector. Furthermore, the company uses the 'completed contract' method for recognizing revenue, which can lead to volatility in financial reporting, where large gains or losses may appear only when projects are finished rather than being spread out over time. The brokerage’s valuation model, which uses a 6x Enterprise Value to Embedded EBITDA multiple, assumes the company will successfully reach its growth targets, making the actual pace of project execution a vital factor for shareholders to track.
Looking ahead, the main items for investors to monitor will be the timeline for new project launches and whether the company can increase its pre-sales figures as projected for FY28. The management's ability to maintain high collection rates while scaling up operations will also be a key indicator of the company's health.