JOINDRE CAPITAL SERVICES LTD. SEBI REGN NO. INH / INB / INB

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1 RESEARCH REPORT 12 th June 2017 ARIHANT SUPERSTRUCTURES LIMITED BSE : ASL Sector: REAL ESTATE DEVELOPMENT BSE: View - BUY CMP : Rs. 187 Target Price: Rs.280 (In next 12 to 18 mths) BUSINESS BACKGROUND Arihant Superstructures Limited is one of the leading developers in the MMR and Jodhpur region. ASL over the last two decades has been executing world class quality construction at truly affordable prices with focus on quality, and time of delivery. The ASL group has a history of having delivered more than 8000 homes with about 7 mn square feet of space constructed which came from roughly 50 projects. Currently ASL has about 13,000 homes under construction with an area of 12.9 mn square feet under development and there are 16 projects under construction KEY DATA FACE VALUE Rs DIVD YIELD % WK HI/LOW 200/66 NSE CODE ASL BSE CODE ASL INVESTMENT HIGHLIGHTS Strong Q4 and FY17 Performance MARKET CAP RS 775 CRS ASL reported a strong set of Q4FY17 numbers with net sales up by 122% YoY to Rs crs, with EBIDTA growing by 275% to Rs crs from Rs 9.86 crs in Q4 last year. The PAT in Q4 FY17 grew by 328% YoY to Rs crs as compared to Rs 5.13 crs in Q4 last year. For FY17 the company has recorded net sales of Rs crs, a EBIDTA of Rs crs and a PAT of Rs crs from Rs crs last year. ASL declared a dividend of 10% for FY17. ASL is a strong player in the Affordable and Middle end of the Real Estate Market vscore: While ASL vscore is present (Value across Score) is all our segments proprietary of company the market, rating its system main f focus remains on the mid and affordable housing segment which accounts for around 63% of its project portfolio as on date. Here the average PSF rates prevailing here are around Rs 3000 to Rs 4000 PSF depending upon the target audience, location and project designed. Another 30% for ASL comes from the Middle Income Group segment where the average PSF rates prevailing are around Rs 4000 to Rs 7000 PSF depending upon the target audience, location and project. The Balance 7% for ASL comes from the Upper Medium Income Group where the average PSF rates prevailing are above Rs 8000 PSF. Geographically for ASL, MMR, Kharghar, Panvel and Navi Mumbai account for 80% of the company s current projects portfolio while the rest Assured 20% will come from Jodhpur, the second biggest city in the state of Rajasthan. ASL s brand presence in both Mumbai and Jodhpur is Long extremely term well Drivers positioned for DHFL as it look enjoys good the right in view locations of the and follow18 provides the best available pricing to home buyers looking for value for money proposition. SHAREHOLDING PATTERN PROMOTERS - 74% BANKS, MFs & DIIs - 5% Others - 9% PUBLIC - 12% KEY FUNDAMENTALS YE FY17 FY18 FY19 Rev Gr% EBIDTA Gr% PAT Gr% EPS Gr% ROCE % Precise ROE % EPS (Rs) P/E (x) Advice

2 ASL enjoys a strong execution track record of projects delivered in the last two decades ASL enjoys a strong brand recognition in high growth markets of Mumbai and Jodhpur with around 8000 homes delivered aggregating 7 mn sq ft in the last two decades. The ASL group has over the last 20 years ensured a high degree of quality of construction which is achieved by Standard Operation Processes (SOPs), Low overheads, Efficient construction cost and timely completion and backed by a impeccable record of planning and execution of projects backed by a professional management team. Some of the important projects delivered and executed by ASL include Location Projects Saleable Area Sq Ft Airoli Badlapur CBD Belapur Ghansoli Kharghar Koperkhairane Nerul Panvel New Panvel Sanpada Thane Vashi Source Company ASL has strategically selected Mumbai Metropolitan Area and the Jodhpur micro-markets for its future growth strategy Arihant Superstructure operates in the Mumbai Metropolitan Area and the Jodhpur micro-markets. The Company has identified these locations as areas that would give it the maximum benefit in terms of demand and supply as well as the affordability factor ASL has a dominant presence in high growth regions like Mumbai MMR (Badlapur, Shil Road, Taloja Navi Mumbai, Panvel, Karjat and Khopoli) and Jodhpur From a location perspective ASL has strong pockets of influence in both the MMR and Jodhpur markets where the Arihant Brand strikes a positive chord from customers. Also more importantly with rising prices in Tier 1 cities, demand for quality housing is slowly moving into Tier 2 and Satellite cities where the quality of life is far better and ASL believes its strategy of a first mover in these markets here will pay rich dividends in the coming years. For both MMR and Jodhpur which are both upcoming cities the long term potential is good and we expect robust demand to continue here.

3 For MMR the key infrastructure projects that are in the development stage include Navi Mumbai International Airport The existing airport has a capacity of 40 mn passengers, which is almost saturated. The new airport will handle 10 mn passengers in its first phase and will go up to 60 mn passengers by The expected completion of Phase 1 in Mumbai Transharbor Link This proposed six-lane sea bridge would connect Sewri in Mumbai to Nhava Sheva in Navi Mumbai. The bridge would be crucial to the increased traffic requirements on account of the upcoming Navi Mumbai International Airport. Navi Mumbai Metro Line 1 With the upcoming Navi Mumbai International Airport and its integration with the Mumbai Metro in subsequent phases, this metro route will serve as a crucial urban mode of transport in Mumbai s satellite city. This is expected to be completed in Seawoods Uran Train Network Currently, this route is connected only through Uran Road. An MRTS connectivity will benefit Ulwe and other markets to the south immensely. Phase I, till Kharkopar, is expected to be completed in Phase II, till Uran, is expected to be completed in Jodhpur, the second biggest city in the state of Rajasthan, is among the famous tourist destinations in the state as well as India. The city is also known as Sun City and it encompasses an area of 22,850 sq.km with a population of 2.1 mn The city is witnessing a rising population with trends moving towards urban living with aspirational lifestyle and amenities. The changing demographics have brought respectable interest both from the property developers and local residents therefore paving way for a potential market. Future Growth Drivers for this market are IT and ITeS companies looking at Tier II cities are making Jodhpur as a hub HPCL refinery near Jodhpur with investment of Rs 37,230 Crores will generate employment for over 1 lakh people Study conducted by NCAER, Barmer refinery will generate Revenues of nearly Rs 4 lakh crore in 15 Years On DMIC lines, development of New Civil Airport and Integrated Multi-Modal Logistics Hub in Jodhpur Mass Rapid Transit System (MRTS) in Jodhpur and Pali One of Mega Leather Cluster at an investment of Rs 125 cr will be in Jodhpur

4 ASL enjoys a strong Business Model largely driven by its Factory of Homes concept philosophy ASL enjoys a strong business model by virtue of the fact that it has already completed the basic building block for sustainable development ahead providing strong visibility to the company s business which is reflected from the fact that ASL has already acquired the land for its projects which is fully paid up (Average cost of Rs 250 PSF) which puts it in a solid advantageous position. Added to this fact ASL has followed a scientific process called the Factory of Homes thesis where in ASL has perfected standardised processes and systems to ensure that this process starts right from the procurement of land, dealing with vendors and ensuring quality audits which has enabled company to cut costs and keep its gross margins rise despite fierce competition in the market and making a significant difference to the profitability margins apart from maintaining the quality of its projects to customers. ASL has a completely integrated inhouse capability right from land procurement, Liason, Design and engineering, EPC and marketing and sales which is all part of its Factory of Homes thesis which is unique and is modelled on the lines of the Automobile industry where the assembly line approach helps in reducing production time, reduces wastages and enhances productivity. ASL has by virtue of this concept ensured standardisation of its product line of Affiordable housing units by using the same floor tiles, same quality painting and wiring required which has ensured optimum and stable quality at affordable prices which is very important to survive and flourish in the middle and affordable housing segment. Long term Demand drivers for ASL look good in view of the following developments ahead Government Initiatives in the LMI (Low Middle Income) & affordable housing space Housing for All by 2022 The Affordable Housing for All is a critical policy agenda for the GoI. The building of 1.6mn homes was sanctioned in FY14 with a value of Rs. 41,723cr. Approximately 11 crore houses is estimated to be required by 2022 of which 70% will be in the affordable segment. The potential investment required in this space is USD250bn pa as per a KPMG report thus implying a huge opportunity for HFCs focused on LMI segment. Annual income of LIG is Rs.1 2 lacs while the property value for these segments is upto Rs. 6lac. The GoI must take steps towards improving banking penetration and reducing cost of houses which will increase the affordability of homes. The LIG (Low Income Group) segment currently constitute 60% of housing shortages in India. In the Union Budget , the government announced 100% deduction for profits to developers for flats upto 30 sqmetres in Chennai, Delhi, Kolkata or Mumbai, and 60 sqmetres nother cities. Also, there will be an exemption from service tax on construction of affordable houses up to 60 sqmetres under any scheme of the central or state government, including public-private partnership schemes. These projects have to be approved during June2016 to March2019 and completed in three years. However, Minimum Alternate Tax will still be applicable. The developers traditionally have a keen interest in the premium housing segment considering higher margins However,with the tax exemptions margins for developers operating in affordable housing were brought at par with the premium segment thus making them attractive from the perspective ef developers. This we believe believe will result in higher focus of organized developers and efficient finance being directed towards Affordable Housing thus increasing supply

5 100 Smart Cities to also boost demand for affordable housing going ahead The 100 Smart Cities government initiative is aimed at reshaping the urban landscape by making cities more affordable and livable. Each city selected under the scheme would be granted Rs. 100cr/year for five years. This presents a huge opportunity for the housing segment and especially for players like ASL which have positioned themselves very strongly in this segment. Govt s Fiscal Benefits to the Affordable and Middle Housing Segment will also benefit players like ASL Benefits to Home Buyers Interest subsidy of Rs 235,000 on purchase of house for individual having income upto Rs 1.8 Mn per year. No processing fee Change in base year from 1981 to 2001 as well as reduction of time frame to 2 years for Capital Gains Calculation. Will make Real Estate Investment as an asset class more attractive Low interest rates on home loans Benefits to Real Estate Players like ASL Availability of low cost of funds due to Infrastructure Status Reduction of cost of funds thru possible sources of procurement of funds from abroad. FDI and Equity Investment is likely to grow due award of Infrastructure status 100 % Tax exemption for all earnings from affordable housing projects If Approved by competent Authority after 1 st Jun, 2016 but on or before 31st Mar, 2019 and which is completed within a period of 5 Years from Approval Date Carpet Area of 30 Sq Mtr for 4 Major Metros viz Chennai, Delhi, Kolkata & Mumbai and 60 Sq Mtrs for all other areas

6 Already demand trends in the first 3 months of 2017 clearly show that the Affordable Housing is the key demand driver of credit growth for banks and HFCs After years of selling pricey luxury homes that boasted amenities like signature golf courses and jacuzzis, builders finally seem to be moving toward modest apartments to suit middle-class pockets.a clear indicator of this is the sharp uptick in home loans driven by sales of houses costing below Rs 25 to 30 lakhs. This year, almost half of all bank credit comprised loans to housing, given the almost non-existent corporate loan demand. Already large HFCs like HDFC are witnessing strong loan book growth from the Affordable housing segment wherein January loan applications rose 21% over December. February applications were another 24% higher, and March was 44% more than the previous month. Housing finance providers are now expecting the affordable homes segment to grow at 25% given the subsidy under the Pradhan Mantri Awas Yojana. The scheme, available until December 2017, provides 4% subsidy on home loans of up to Rs 9 lakh for those with an income of up to Rs 12 lakh per year, and 3% subsidy on loans of up to Rs 12 lakh for those earning up to Rs 18 lakh per year. According to CLSA, Prime Minister Narendra Modi s drive to bring homes to the country s 1.3 billion people, rising incomes and the best affordability in two decades will unleash a $1.3 trillion wave of investment in housing over the next seven years. CLSA expects 60 million new homes to be built between 2018 and 2024, creating about 2 million jobs annually and giving a tailwind of as much as 75 basis points to India s gross domestic product. The volume of social and affordable housing will rise almost 70% to 10.5 million annually by 2024, exceeding the 33% increase in the premium market. In February, the government granted affordable-housing builders infrastructure status, making them eligible for state incentives, subsidies, tax benefits and institutional funding. In June 2015, it announced a Housing for All program which aims to construct 20 million homes across the country and in December it announced rebates and interest waivers for home loans under the program. That s not all that s expected to fan demand. In the past five years, mortgage rates have dropped about 275 basis points to about 8.5% Prices have remained stable while per-capita incomes have posted a compound annual growth rate of about 10% While India s real estate industry extended a slump after Modi s sudden decision to ban 86% of the nation s cash in November, affordable housing was growing the fastest before demonetization and the whole market has shown signs of snapping back. Home sales, which slumped in the wake of the cash ban, have since shown signs of a recovery, and sales across nine cities rose 19% in the March quarter, rebounding from a 20% slump in the previous three months.

7 Future Project Monetization of around 4.63 mn sq ft for ASL to happen in the next months ASL has a strong product pipeline over the next 6 to 7 years totalling 12.9 mn sq ft out of which 0.5 mn sq ft is nearly completed, another 2.7 mn sq ft is under construction and for 8.5 mn sq ft construction is yet to be completed. Another 1 mn sq ft is yet to be conceived by the company. The total value of projects estimated are worth around Rs 5200 crs as on date. ASL expects total saleable area of 4.6 mn sq ft to be monetized over the next 18 to 24 months based on its projects in Mumbai and Jodhpur. It has already sold around 2.74 mn sq ft til date out of this saleable area for which part payments have been received and the balance are expected to be monetized in this period. In MMR and Mumbai related areas, ASL has around 9 ongoing projects with a total saleable area of 7.5 mn sq ft comprising of 7900 units. For the Jodhpur market ASL has around 6 ongoing projects with a total saleable area of 5.37 mn sq ft comprising of 4500 units. According to the company management, for sales completed and delivered and accounted for works out for 10% of the total projects undertaken, From ongoing sales started by the company for existing projects the company has accounted for 18% of project receipts while a majority portion of projects to the extent of 67% the company has yet to start booking sales. Hence we expect a significant jump in revenue for these projects to be reflected in future. In terms of geographical breakup of revenues, around 19% of revenues will come from MMR, 40% of revenues will come from Panvel, 20% will come from Kharghar, 1% from Thane and 20% from Jodhpur. Hence we believe that ASL is adequately de risked its business and where price realisations benefit from the Mumbai market will benefit the company more than adequately. ASL enjoys a strong balance sheet and both Topline and Bottomline growth is likely to remain strong going ahead ASL enjoys a strong balance sheet with a debt of around Rs 255 crs on the balance sheet as on FY17 as compared to a tangible networth of Rs 109 crs as on March More Importantly both key operating parameters like ROCE, ROE are placed around 10.5% and 35% respectively which we believe have a strong upwards potential as as topline growth improves further. We expect that going ahead overall bottomline growth in the next 2 years starting FY17 onwards should easily touch 35-40% and with healthy cash flows being generated we expect the company to fund its expansion plans largely from internal accruals and lesser dependence on debt making the capital structure healthy. Our expectation is that ROCE and ROE by FY19 should touch 17% and 37% respectively..

8 Business Outlook & Stock Valuation JOINDRE CAPITAL SERVICES LTD. On a rough cut basis, in FY18, Net Sales are estimated to touch Rs 286 crs. On the bottomline level we expect the company to record a PAT of Rs 48 crs in FY18E. Thus on a conservative basis, ASL should record a EPS of Rs for FY18E. For FY19E our expectation is that earnings traction for ASL would continue to be robust wherein we expect a EPS of Rs respectively. ASL has a strong product pipeline over the next 6 to 7 years totalling 12.9 mn sq ft out of which 0.5 mn sq ft is nearly completed, another 2.7 mn sq ft is under construction and for 8.5 mn sq ft construction is yet to be completed. Another 1 mn sq ft is yet to be conceived by the company. ASL expects total saleable area of 4.6 mn sq ft to be monetized over the next 18 to 24 months based on its projects in Mumbai and Jodhpur. It has already sold around 2.74 mn sq ft til date out of this saleable area for which part payments have been received and the balance are expected to be monetized in this period. In MMR and Mumbai related areas, ASL has around 9 ongoing projects with a total saleable area of 7.5 mn sq ft comprising of 7900 units. For the Jodhpur market ASL has around 6 ongoing projects with a total saleable area of 5.37 mn sq ft comprising of 4500 units. ASL enjoys a strong business model by virtue of the fact that it has already completed the basic building block for sustainable development ahead providing strong visibility to the company s business which is reflected from the fact that ASL has already acquired the land for its projects which is fully paid up (Average cost of Rs 250 PSF) which puts it in a solid advantageous position Hence we believe that the ASL stock should be purchased at the current price for a price target of around Rs 280 over the next 12 to 18 months. FINANCIALS For the Year Ended March RsCrs FY16A FY17A FY18E FY19E Net Sales EBIDTA EBIDTA % Interest Depreciation Non Operational Other Income Profit Before Tax Profit After Tax Diluted EPS (Rs) Equity Capital Reserves Borrowings Inventories Land Source Company our Estimates

9 KEY CONCERNS Increase in price of input materials especially sharp rise in interest rates could impact the Company s profitability Any major down turn in the domestic economy and project delays can impact the company s profitability. DISCLAIMERS AND DISCLOSURES This document has been prepared by Joindre Capital Services Limited and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. Recipients may not receive this report at the same time as other recipients. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Opinions expressed are current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis, the information discussed in this material, Joindre Capital Services Limited,its directors, employees are under no obligation to update or keep the information current. Further there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Joindre Capital Services Limited, its directors and employees and any person connected with it, will not in any way be responsible for the contents of this report or for any losses, costs, expenses, charges, including notional losses/lost opportunities incurred by a recipient as a result of acting or non-acting on any information/material contained in the report. This is not an offer to sell or a solicitation to buy any securities or an attempt to influence the opinion or behaviour of investors or recipients or provide any investment/tax advice. This report is for information only and has not been prepared based on specific investment objectives. The securities discussed in this report may not be suitable for all investors. Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own analysis. Trading in stocks, stock derivatives, and other securities is inherently risky and the recipient agrees to assume complete and full responsibility for the outcomes of all trading decisions that the recipient makes, including but not limited to loss of capital. Opinions, projections and estimates in this report solely constitute the current judgment of the author of this report as of the date of this report and do not in any way reflect the views of Joindre Capital Services Limited, its directors, officers, or employees. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. CONTACT DETAILS Mr. Avinash Gorakshakar (Research Head) Tel.: , avinashg@joindre.com COMPLIANCE TEAM Mr. A. P. Shukla (President & COF) Tel.: shuklaap@joindre.com Mrs. Sujata Poojary (Sr. Executive ) Tel. : compliance@joindre.com Mrs. Nikita Shah (Sr. Executive) Tel. : compliance@joindre.com