BoA ML: Puravankara: Raise Price target to 156

Strong residential trends to support growth; Raise PO
We reiterate our Buy rating on Puravankara with an increased PO of Rs156
(higher by 10%) offering 22% potential upside to factor in higher volume and
pricing assumption for Bangalore. Key triggers would be increased launches
across Purva and Provident brands, improved cash flows from higher sale in
under construction projects and launch of low cost housing under Homex JV.
Expect launches to gain pace
We expect increased pace of launches by Puravankara across its premium and
affordable housing segments over next six months leading to 50% volume growth
in FY11. We believe higher visibility of launches will be a key trigger for the stock
as Puravankara has lagged behind its competitors in getting new projects of the
shelf. (0.8mn sq ft launched in 2010). The improved sales in older projects, which
are nearing completion, are expected to further boost cash flows. In many of the
projects, Puravankara is close to completion but with 30-35% unsold inventory.
Affordable housing to push volume
Puravankara is giving a big push to its affordable housing strategy and is planning
to expand aggressively beyond Bangalore to other Tier 2 & 3 towns in South
India. We expect 50% of its volume from FY12 to be contributed by the affordable
segment under the Provident brand, though at a lower margin of 23-25%. It is also
planning to launch house priced below Rs1.2mn under its joint venture with
Homex to target the low-income mass housing segment.
Key Risk: Execution, IT/ITeS industry
We believe execution would be critical for Puravankara as it is looking to give
major thrust on low margin affordable housing. Due to its high exposure to
Bangalore, growth in IT/ITeS industry would also be the key to drive demand.