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Puravankara Projects Ltd
Strong pre sales, but margin
disappoint, Maintain Buy
Margins disappoint, Maintain Buy
Puravankara reported net profit of Rs356mn, down 3% QoQ and 14% lower than
our estimate. The net profit disappointed primarily due to sharp drop in EBIDTA
margin from 34% to 25% as it started recognizing Chennai’s affordable housing
project and increased cost estimates for some of its projects. We expect the
margin to bounce back to a normalized level of 30% from 3Q. We reiterate our
Buy rating with PO of Rs156 (23% upside potential) as we expect pre sales to
surprise on the upside with strong cash flows from current projects in 2HFY11.
We have made minor adjustments to our estimates.
Upside risk to our presales estimate for FY11
PVKP reported strong pre sales of 1.1mn sq ft in 2Q at ASP of Rs2786/sq ft
against 0.43mn sq ft sold in 1Q. The sharply higher pre -sales in the quarter was
supported by new launch in Bangalore which contributed 0.38mn sq ft in 2Q. We
believe there is 10-15% upside risk to our sales estimate of 3mn sq ft for FY11 as
PVKP plans to aggressively launch new projects over next 6 months across
Bangalore, Chennai and Coimbatore.
Increasing debt a concern
We are concerned at consistent increase in debt from Rs8.1bn in Mar 09 to
Rs9.7bn even though leverage is still at comfortable levels of 0.6x. The debt has
increased as cash inflow from pre sales has not been sufficient to fund the
construction and interest expenditure while PVKP has also invested in new land
for Provident projects. But we do expect PVKP to start generating surplus cash as
sales improve in its nearing completion projects (over 90% construction
completed) like Venezia (24% inventory) and Highlands (40% inventory).
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