Investment Case –
- Max Estates is on a mission to deliver 10,00,000 sqft of Grade A Commercial Office Space in the NCR region EVERY year.
- These buildings are not future proof, but the future itself.
- Grade A office space are a fantastic rent yielding asset that the likes of Blackstone, Brookfield and Singapore’s GIC are after. By the end of this year they would have 42,000 cr , 28,000 cr and 28,000 cr respectively invested primarily into commercial office space in India.
Why I think Max Estates can do it –
- The model that Max follows in one of “No Land Leverage.” They are on a mission to create buildings, ownership is not a primary mission for the company.
- Since the company is not looking at buying land and leveraging land, most of their borrowings will be pure play working capital loans, mostly as loans against rentals.
- Their first project Max Towers at Noida will yield a cool rent of 60 cr a year from 2020, taking the asset value to about 850 cr. (Current M.Cap is 650 cr and enterprise value is 775 cr)
- For longer patient capital, they will be partnering with the likes of Apollo Global. https://www.apollo.com/our-business/real-assets
- The Max Group in NCR with Analjit Singh at the helm is akin to Godrej Properties in Mumbai. The deal pipeline and distressed opportunities that come their way is replicable by very few others.
- This is probably the last company Analjit Singh will be involved in creating in his illustrious life and like he confesses, he has always had a Khurrak (itch) to do something in real estate and construction as that was his original family business.
- Max will continuously raise equity at good valuations and yet keep the promoter stake the same, by probably merging Analjit Singh’s personal assets into the company. Godrej Properties has diluted the non-promoter equity interest by about 40% and managed to keep the promoter shareholding about the same in the last 5 years. It is a great win-win strategy for the promoters and market capitalization.
- Intangibles – Real estate is a dirty & murky business in which goodwill, fear, reputation and power are fantastic intangibles to have. In many cases way more important than money and the Max Group has it. This company will leverage that.
Promoter Pedigree –
- Sahil Vacchani, the CEO of Max Ventures comes from a hardcore manufacturing background. His family once owned Weston – the popular TV brand. Sahil also had ownership and a huge role to play in Dixon Technologies. He sold his stake to join Max Ventures after he took up a full time role as CEO. He is also the son-in-law of the stalwart Analjit Singh. This combo is on a mission to MANUFACTURE grade A office space at a grand scale in the NCR.
- Max Towers – 6,00,000 sqt valued at about 800-1000 cr.
- Max House Okhla – 1,05,000 sqft exclusively leased to WeWork valued about 150 cr.
- 222 Rajpur – 50% sold and all cost of construction completed.
Other Entities in MVIL
- Speciality Films – https://www.maxspecialityfilms.com/ . 50:50 Joint venture with Toppan Japan. No more Capex required for the near future.
- Nykaa – https://www.nykaa.com/ Stake valued at 50-70 cr
- Rajpur 222
- Azure Hospitality – https://azurehospitality.com/brands/ Stake valued at about 75-80 cr.
Trends in Commercial Office Space
- The last big game changer for commercial office space was the elevator.
- The current big gamechanger seems to be killing the cubicle and making spaces that everyone can use.
- Coworking is a great catch word, but fundamentally the funda is moving from command and control to engage and collaborate.
Valuations and my Absurd Projections
- I don’t believe there is a good way of being able to account for intangibles or a way to project them. In real estate especially where the business is basically a bunch of non-repetitive projects, the bigger target is very crucial. The size of the pond that max is interested is the Delhi NCR region which is 1,500 sqkm.
- Grade A office space cannot really be created overnight and neither can you easily modify old buildings to make them what the future needs. Ownership of most old buildings, is fragmented which makes the task even more difficult.
- I think Sahil Vachani’s target would be to build a half a billion dollar business in the next 5-7 years. Yup, 3,500 cr market value ! That is about 6x from here. I have been dead right about NBCC and Godrej Properties in the past.
- As this is a pretty =illiquid counter, i suggest you buy in and increase investment as each building starts yielding rent or each investment is exited.
- This counter requires extreme patience and has a huge payoff if things go right, and you don’t lose more than 25-30% if the company completely shuts down ! -0.3% to a +600% a good bet to me.
- I have not covered the misc investments and speciality films business in detail as they will mostly be providing cash for the RE business once they are debt free and exited.