Puravankara Projects:2Q FY11 results: profit declines-Daiwa

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Puravankara Projects (PVKP IN) Rating:1
2Q FY11 results review: net profit declines QoQ due to higher expenses



What has changed?
• For 2Q FY11, Puravankara Projects’s (Puravankara) profit after tax (PAT)
declined by 3% QoQ, despite revenue rising by 33% QoQ, due to increases in
construction and selling expenses, and the tax rate for the quarter.



Impact
• Revenue rose by 33% QoQ: the increase in revenue was driven by a rise in the
sales volume to 0.74m sq ft, from 0.22m sq ft for 1Q FY11, for Puravankara
and to 0.36m sq ft for 2Q FY11, from 0.21m sq ft for 1Q FY11, for its 100%-
owned subsidiary Provident Ltd (Not listed).
• The PAT declined by 3% QoQ to Rs357m: the decline in the PAT was driven
by increases in: 1) direct expenses (up 52% QoQ), 2) selling expenses (up 120%
QoQ to Rs81m), and 3) the tax rate (14% for 2Q FY11 compared with 9% for
1Q FY11).
• Balance sheet remains stable: the net debt-to-equity ratio increased marginally
to 0.6x for 2Q FY11, compared with 0.57x for 1Q FY11, due to an increase in
the net debt of Rs515m to Rs9.3bn. However, we are concerned by the decline
(down Rs405m QoQ) in customer advances to Rs2.1bn.
Valuation
• We maintain our six-month target price of Rs150, based on 1x target NAV
multiple on our end-FY12 NAV forecast. We note that our residential price
assumptions are about 10-20% below current residential prices.
Catalysts and action
• We maintain our 1 (Buy) rating, supported by our expectation of: 1) greater
hiring activity and salary increases in information technology/information
technology enabled services, and 2) an improvement in the economy leading to
an improvement in sentiment.