THE COMPANY: Madinet Nasr for Housing & Development (MNHD) was established in 1959 by governmental decree to develop present-day Nasr City. The company also operates in construction works through two subsidiaries: El Nasr Utilities, 95% owned, and Nasr Company for Civil Works, 52% owned. Over the years, MNHD evolved from a purely government-based company specialising in middle-income housing into a largely privatised real estate developer by 2006, when Beltone Financial Holding’s private equity arm acquired a 30% stake in it. Since then, MNHD has undergone managerial restructuring and resolved major land-bank-related issues that had previously hindered its land utilisation. The government currently holds a 15% stake through the National Company for Construction and Development.
To capitalise on the prime location of its 9m sq metres of property in central Cairo, MNHD aims to shift its focus from the middle-income to the upper-middle-income segment. The company has three plots of raw land: Teegan consists of 3.2m sq metres located at the intersection of the Cairo-Suez and Ring Roads; KM45, a 5.5m-sq-metre plot located on the Cairo-Suez Road next to TMG Holding’s Madinaty project; and Nasr Gardens, 200,000 sq metres situated between the Cairo-Faiyum and Oasis Roads in West Cairo. Except for Nasr Gardens, which was bought at LE70 ($10) per sq metre, all of the plots were allocated by the government. The company enjoys a litigation-free land bank, in stark contrast to other players.
MNHD’s stand-alone revenue for the end of 2012 was impressive, specifically on the operational front, as the impact of Tag Sultan’s launch started materialising and the company began booking the land portion of the project’s contracted sales, which were up 5.6x quarter-on-quarter (q-o-q) and 40% year-on-year (y-o-y) to LE135m ($19.2m). For the whole of 2012, MNHD reported stand-alone revenue of LE235m ($33.44m), up 27% y-o-y. Gross profit margin, a function of the delivery mix, rose to 73% in 2012 from 67% in 2011 and amounted to 63% in Q4 2012 versus 78% in 3Q 2012 and 53% in Q4 2011. Net profit for Q4 2012 came in at LE24m ($3.42m), up 2.6x q-o-q but in line with levels seen in Q4 2011. Earnings for the year increased 28% y-o-y to LE80m ($11.38m) while receivables rose 14% to LE550m ($78.27m).
DEVELOPMENT STRATEGY: Al Waha, located in Nasr City and catering to the middle-income segment, was MNHD’s main revenue-generating project until October 2012, when it launched Tag Sultan, a 300,000-sq-metre development in its flagship project, Teegan. The development differs from the company’s previous projects in terms of target market (upper-middle income) and product offering. Sales at Tag Sultan, since its launch in October 2012, reached LE400m ($56.92m), easily surpassing the LE130m ($18.5m) of sales the firm achieved in the whole of 2011. MNHD is targeting sales of LE500m ($71.15m) at Tag Sultan and another LE200m ($28.46m) at Al Waha, which puts it on the radar with Egypt’s big real estate players. Further, approval of the KM45 master plan means should see the project launch in 2014.
Following a restructuring, the focus of MNHD’s business model shifted to unit sales from land sales, as well as to off-plan sales from on-completion sales. The company previously relied solely on self-financing, but, given that Tag Sultan is expected to require capital expenditures of LE150m-200m ($21.35m-28.46m) by 2013 and that the KM45 project is in the pipeline, MNHD will need to resort to bank financing in addition to its operating cash flow. We do not expect this to be an issue, as the company’s net debt-to-equity ratio stood at -1% as of 2012.
MNHD’s land bank is also immune to litigation and the government owns 15% of the company, which makes its risk profile lucrative. The company successfully secured credit facilities worth LE100m ($14.23m) in the 2011/12 fiscal year. MNHD estimates that its total debt needs could reach LE190m ($27m) by 2014, though it might not need to use the full amount.
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