Visit http://indiaer.blogspot.com/ for complete details MAHINDRA LIFESPACES 2QFY11: Above estimate; Strong sales momentum in residential vertical; New acquisitions to be NAV accretive; Buy
- Mahindra Lifespaces (MLL) reported 2QFY11 results above our expectation. Standalone revenues increased 40% YoY to Rs890m (v/s est Rs783m), while net profit increased 21.7% YoY to Rs247m (v/s est Rs217m). EBITDA grew 26% to Rs234m, while EBITDA margins stood at 26% (v/s 23% in 2QFY10).
- MLL’s consolidated revenue for 1HFY11 registered a 46% growth to Rs2.1b (v/s Rs1.4b in 1HFY10) and consolidated net profit grew a sharp 104% to Rs438.5m (v/s Rs214.5m in 1HFY10).
- Sale of residential units during 1HFY11 stood at Rs3.5b, a 129% jump from Rs1.5b in 1HFY10.
- During 2QFY11, MLL acquired two land parcels in Mumbai of ~0.4msf of developable area in Kandivali and Ghatkopar. It has also signed an MoU for acquiring 23 acres (1.8msf saleable area) in Pune and a JDA for 10 acres (1msf saleable area) in Hyderabad. We expect these projects to be value accretive and hence we will be revising our NAV estimation based on further clarity on these projects from management.
2QFY11 operational update
- As on Sep-10, MLL had developed residential projects covering 5.9msf. It is developing 2.7msf and projects covering ~6.5msf are in the planning stage.
- During 2QFY11, MLL launched ~0.4msf in two of its projects at 1) Eminente phase-3 of 0.15msf (Goregaon, Mumbai) and 2) Aura phase-2 of 0.25msf (Gurgaon). The company has already launched phase-1 of its Aqualily project at Mahindra World City (Chennai).
- The management has indicated that it has witnessed a strong response in most of these projects (~0.45msf of sales volume during 2QFY11). While it has already sold ~100% of Aura phase-2, almost 33% of the Eminente project has been sold during 2QFY11. Sale of residential units during 1HFY11 stood at Rs3.5b, a 129% jump from Rs1.5b in 1HFY10.
- During 2QFY11, MLL acquired two land parcels in Mumbai 1) 0.15msf at Kandivali and 2) 0.23msf at Ghatkopar. MLL has also signed MoU for acquiring 23 acres (1.8msf saleable area) in Pune and a JDA for 10 acres (1msf saleable area) in Hyderabad. None of these projects are part of our current NAV.
- MLL has two key ongoing SEZ projects at Chennai and Jaipur. The Chennai SEZ is in the advanced monetization stage with focus now on monetizing the residential and institutional areas, and the Jaipur SEZ is in the early monetization phase with the sale of the processing area underway. MLL plans to expand its Chennai SEZ by 100 acres in FY11 and complete the acquisition of the remaining ~370 acres at the Jaipur SEZ.
- During 1HFY11, MLL signed up 4 customers at its Chennai SEZ: 1) Tridon (Australia) 2) NTN Corporation (Japan) 3) Alpha Packaging (Japan) and 4) JSP Foams (Japan). The total number of customers at Chennai SEZ stood at 53 with 34 companies currently operational.
- The total customer base at Jaipur SEZ stood at 35 customers of which three have started operation and six companies have started their construction, while the total employment stood at 2,000 people.
- MLL is trying to acquire an incremental 1,000 acres in North Chennai. The project is being designed to provide world class infrastructure to mid-sized ancillary industries such as auto components, electronics, precision engineering and logistics. Besides, MLL is acquiring land near Pune in Maharashtra for a large format development (a company presentation indicated the area was ~3,000 acres).
Valuation and view
- MLL has a sound business model, a healthy balance sheet and no land outstandings. Our current SOTP value for MLL is Rs560/share: (1) Chennai SEZ at Rs195/share, (2) Jaipur SEZ at Rs180/share, (3) residential vertical at Rs127/share, and (4) other rental assets at Rs60/share.
- Our valuations do not include: (1) a 52-acre Thane project, (2) a 50-acre commercial plot at Chennai SEZ, 3) two planned SEZs/industrial parks in Chennai and near the Mumbai-Pune Expressway (for which an advance of ~Rs1.3b has been paid), and 4) recently acquired projects at Ghatkopar, Kandivali, Pune and Hyderabad. We will be revising our NAV estimation by including the recently acquired projects since we expect them to be value accretive.
- The stock trades at ~1.7x FY12E adjusted book value of Rs283 and at 15% discount to its SOTP value. Buy.
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