Multibagger Stock: TARC rallied 545% in 3 years, over 250% in last 12 months; should you buy?

Real estate stock TARC has given exponential returns in the long term as well as recently. The stock has surged almost 545 percent in 3 years from ₹36.30 to currently trade at ₹234.35. Meanwhile, it has rallied over 258 in the last 1 year and over 72 percent in 2024 YTD.

The stock hit its record high of ₹234.35 in intra-day deals today, July 8. It has now skyrocketed almost 272 percent from its 52-week low of ₹63.06, hit on July 12, 2023.

Despite such an excellent performance, domestic brokerage house Ambit Capital sees more upside in the stock going ahead. It has initiated coverage on the stock with a ‘buy’ call and a target price of ₹325, implying a potential upside of 39 percent.

Ambit Capital highlighted that TARC, leveraging its 50-year legacy and extensive land holdings exceeding 500 acres, aims to establish itself as a leading luxury housing developer in the NCR region. Emphasising on innovation, inspiration, and execution (3Is), TARC seeks to enhance its brand presence in the trust-sensitive NCR residential real estate market.

Strategic architectural developments and partnerships, including with Bain, coupled with prime land parcels, are expected to drive pre-sales of over ₹15,000 crore from FY25 to FY27, it noted. Moreover, with a strong free cash flow from its legacy land bank, TARC plans to strengthen its balance sheet by reducing its debt; the debt-to-equity ratio is projected to decrease to 0.1x in FY25 from 1x in FY24, it predicted.

Ambit also pointed out that TARC's trajectory mirrors that of DLF in the early 2000s, positioning it as a structural player in real estate compounding over the next two decades.

However, risks include execution challenges, delays in approvals, and scaling up of the team, it warned.

March quarter earnings

TARC announced a significant downturn in its financial performance for Q4 FY24, reporting a net loss of ₹51.73 crore compared to a profit of ₹1.52 crore in the same period last year. Consolidated revenue plummeted by 92 percent year-on-year to ₹10.36 crore. The company also posted an operating EBITDA loss of ₹4.11 crore, contrasting with an operating EBITDA of ₹38 crore in Q4 FY23.

For the full FY24, TARC reported a net loss of ₹77 crore, a stark contrast to the net profit of ₹20 crore in the previous fiscal year. Total consolidated revenue for FY24 declined by 68 percent year-on-year to ₹121.40 crore, with operating EBITDA decreasing by 70.70 percent year-on-year to ₹46.56 crore.

Ambit Capital's investment rationale for TARC revolves around its strategic advantages and growth potential:

Prime Land Holdings and Luxury Focus: TARC leverages its extensive land bank exceeding 500 acres in NCR, positioning itself uniquely. Partnering with renowned contractors like Arabian Construction Company enhances margins, supports strong free cash flow from legacy land, and aims for debt retirement by FY26, stated the brokerage.

Opportunity in NCR Market: As per the brokerage, despite NCR's dominance in India's top city markets, there exists a trust deficit in developers. This creates opportunities for new entrants like TARC alongside established giants. Emerging developers such as Signature Global, TARC, and Max Estates are poised to capitalise on this evolving landscape.

Strategic Assets and Architectural Focus: Ambit pointed out that with a five-decade legacy as a landowner, TARC scores high on strategic assets. Recent enhancements in architecture, bolstered by global partnerships with architects and consultants, position TARC to establish a lasting legacy in Delhi's undersupplied market.

Mirrors DLF's Transformative Journey: According to Ambit, similar to DLF's early days acquiring prime land in Delhi, including Model Town and South Extension, TARC boasts a substantial land bank of over 500 acres and a legacy spanning five decades. Positioned to excel in luxury residential projects, TARC aims to emulate DLF's success by expanding beyond land ownership. This includes venturing into infrastructure development, navigating approvals, and managing construction. Diversifying into commercial and retail sectors alongside residential projects underscores TARC's strategy to unlock growth potential. With a robust foundation and strategic evolution, TARC is poised to follow DLF's path to becoming a key player in the Delhi NCR real estate landscape, it explained.

De-leveraging and Growth Strategy: TARC plans significant project launches worth ₹15000 crore from FY25 to FY27. Successful project deliveries and ongoing launches are expected to drive re-rating, it said. Valuations, currently at 4.3x one-year forward price-to-book, offer a 7 percent discount to peers and are poised for re-rating with scale. The debt-to-equity ratio is projected to decrease from 1x in FY24 to 0.1x by FY25, with TARC aiming for a net cash-positive position by FY26E, further noted the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.