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Revenue and PAT ahead of estimates
Mahindra Lifespace Developers (MLIFE) reported standalone Q3FY11 revenue of
INR 1,558 mn against our estimate of INR 1,200 mn. As a result, EBITDA, at INR
428 mn, was higher than our estimate of INR 300 mn, with reported EBITDA
margin of 27.5% against our expectation of 25%. PAT, at INR 334 mn,
surpassed our estimate of INR 254 mn, primarily due to higher revenue
recognition from ongoing projects and higher–than-expected other income.
Residential sales momentum intact with ~INR 2.3 bn of sales in Q3FY11
The company registered sales of residential units (including subsidiaries)
of ~0.5 msf worth ~INR 2.3 bn in Q3FY11, which compares well with 0.4 msf of
sales worth INR 2.6 bn in Q2FY11. In 9mFY11, MLIFE achieved sales of 1.16 msf
worth INR 5.8 bn compared to 0.86 msf of sales worth INR 3.86 bn in 9mFY10.
It also launched Iris Court, a residential project, with saleable area of ~0.8 msf
in Mahindra World City, Chennai.
Steady leasing activity at Chennai and Jaipur SEZs
MLIFE’s Chennai SEZ added two new customers during Q3FY11, taking total
customers to 55, of which, 35 are operational (in Q2FY11, it had 53 customers,
of which 34 were operational). Mahindra World City Developers, Chennai, has
also signed up with Duet Hotels, a UK-based hotel fund, to set up a business
hotel at the Chennai SEZ. The Jaipur SEZ has 28 customers, of which three are
operational (Infosys, Deutsche Bank, and Eexcel) with ~2,500 employees;
another nine customers (including ICICI Bank and State Bank of India in DTA
zone, Ratan Textiles in Handicrafts SEZ, and Knit Pro in Light Engineering SEZ)
have initiated construction. Also, a total of 10 companies have entered into MoUs
with Mahindra World City, Jaipur.
Outlook and valuations: Attractive; upgrade to ‘BUY’
We roll forward our NAV estimate to FY12 basis and factoring in higher cost of
debt and equity, our revised NAV is INR 508/share (earlier INR 536/share). We
believe that MLIFE’s strong branding, stable business model, and low gearing
(debt/equity of 0.4x as of Q3FY11) makes the stock an attractive buy at CMP of
INR 320/share, where the stock trades at 37% discount to our NAV. Hence, we
are upgrading our recommendation on the stock to ‘BUY’ from ‘HOLD’. We rate
the stock ’Sector Performer’ on relative return basis.
Company Description
MLIFE is part of the Mahindra Group, which is among the largest business houses in
India, with interests in auto, farm equipment software, among others. The group has a
history of over 60 years, with more than 75,000 employees and group revenues
exceeding USD 6 bn. MLIFE, along with its sister concern Mahindra Holidays, is part of
the group’s infrastructure development sector business vertical. Mahindra Holidays is a
vacation ownership company, while MLIFE is the real estate arm.
MLIFE’s business is divided into standalone real estate and integrated development. The
former focuses on residential and commercial development in tier I and II cities,
leveraging on the Mahindra brand. All developments in this business sub-vertical are
undertaken by MLIFE directly. The company has delivered 5.9 msf of residential and
commercial development in this sub-vertical till date.
MLIFE’s integrated development business focuses on building destinations. This is
implemented by developing SEZs, industrial parks, etc., through multi-format
developments such as land and built to suit (BTS) structures. The company is the
promoter of corporate India’s first operational SEZ and is the promoter of two largest IT
SEZs in the country. Business of this sub-vertical is undertaken through Mahindra World
City (MWC) SPVs. MWC has completed 2,000 acres of land development till date and has
served clients like BMW, Infosys, Renault Nissan, Wipro, Capgemini, among others.
It is currently developing four industrial parks / SEZs—MWC Chennai, MWC Jaipur, and
MWC Pune. Of the three, two SEZs (MWC Chennai and MWC Jaipur) are operational and
the other two is in the land acquisition stage.
Key Risks
Value creation from SEZs back-ended in nature
A major part of MLIFE’s valuation emanates from MWCC and MWCJ. Being part of SEZs,
monetisation of the projects can get back-ended, and hence valuations are subject to
higher volatility.
SEZ tax laws
The current tax code allows significant tax benefits to companies operating out of SEZs
and developers of SEZs. The central government is overhauling direct lax laws in India.
While we do not expect materially adverse developments on this front, any such
development can impair the attractiveness of SEZs for companies and / or business
viability and their valuations.
Land acquisition a risk
MLIFE does not maintain a large land bank for its developmental needs. Instead, it
acquires land and develops it within a relatively short duration of time. Inability to
sustainably replenish land bank can negatively impact its standalone real estate
business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue and PAT ahead of estimates
Mahindra Lifespace Developers (MLIFE) reported standalone Q3FY11 revenue of
INR 1,558 mn against our estimate of INR 1,200 mn. As a result, EBITDA, at INR
428 mn, was higher than our estimate of INR 300 mn, with reported EBITDA
margin of 27.5% against our expectation of 25%. PAT, at INR 334 mn,
surpassed our estimate of INR 254 mn, primarily due to higher revenue
recognition from ongoing projects and higher–than-expected other income.
Residential sales momentum intact with ~INR 2.3 bn of sales in Q3FY11
The company registered sales of residential units (including subsidiaries)
of ~0.5 msf worth ~INR 2.3 bn in Q3FY11, which compares well with 0.4 msf of
sales worth INR 2.6 bn in Q2FY11. In 9mFY11, MLIFE achieved sales of 1.16 msf
worth INR 5.8 bn compared to 0.86 msf of sales worth INR 3.86 bn in 9mFY10.
It also launched Iris Court, a residential project, with saleable area of ~0.8 msf
in Mahindra World City, Chennai.
Steady leasing activity at Chennai and Jaipur SEZs
MLIFE’s Chennai SEZ added two new customers during Q3FY11, taking total
customers to 55, of which, 35 are operational (in Q2FY11, it had 53 customers,
of which 34 were operational). Mahindra World City Developers, Chennai, has
also signed up with Duet Hotels, a UK-based hotel fund, to set up a business
hotel at the Chennai SEZ. The Jaipur SEZ has 28 customers, of which three are
operational (Infosys, Deutsche Bank, and Eexcel) with ~2,500 employees;
another nine customers (including ICICI Bank and State Bank of India in DTA
zone, Ratan Textiles in Handicrafts SEZ, and Knit Pro in Light Engineering SEZ)
have initiated construction. Also, a total of 10 companies have entered into MoUs
with Mahindra World City, Jaipur.
Outlook and valuations: Attractive; upgrade to ‘BUY’
We roll forward our NAV estimate to FY12 basis and factoring in higher cost of
debt and equity, our revised NAV is INR 508/share (earlier INR 536/share). We
believe that MLIFE’s strong branding, stable business model, and low gearing
(debt/equity of 0.4x as of Q3FY11) makes the stock an attractive buy at CMP of
INR 320/share, where the stock trades at 37% discount to our NAV. Hence, we
are upgrading our recommendation on the stock to ‘BUY’ from ‘HOLD’. We rate
the stock ’Sector Performer’ on relative return basis.
Company Description
MLIFE is part of the Mahindra Group, which is among the largest business houses in
India, with interests in auto, farm equipment software, among others. The group has a
history of over 60 years, with more than 75,000 employees and group revenues
exceeding USD 6 bn. MLIFE, along with its sister concern Mahindra Holidays, is part of
the group’s infrastructure development sector business vertical. Mahindra Holidays is a
vacation ownership company, while MLIFE is the real estate arm.
MLIFE’s business is divided into standalone real estate and integrated development. The
former focuses on residential and commercial development in tier I and II cities,
leveraging on the Mahindra brand. All developments in this business sub-vertical are
undertaken by MLIFE directly. The company has delivered 5.9 msf of residential and
commercial development in this sub-vertical till date.
MLIFE’s integrated development business focuses on building destinations. This is
implemented by developing SEZs, industrial parks, etc., through multi-format
developments such as land and built to suit (BTS) structures. The company is the
promoter of corporate India’s first operational SEZ and is the promoter of two largest IT
SEZs in the country. Business of this sub-vertical is undertaken through Mahindra World
City (MWC) SPVs. MWC has completed 2,000 acres of land development till date and has
served clients like BMW, Infosys, Renault Nissan, Wipro, Capgemini, among others.
It is currently developing four industrial parks / SEZs—MWC Chennai, MWC Jaipur, and
MWC Pune. Of the three, two SEZs (MWC Chennai and MWC Jaipur) are operational and
the other two is in the land acquisition stage.
Key Risks
Value creation from SEZs back-ended in nature
A major part of MLIFE’s valuation emanates from MWCC and MWCJ. Being part of SEZs,
monetisation of the projects can get back-ended, and hence valuations are subject to
higher volatility.
SEZ tax laws
The current tax code allows significant tax benefits to companies operating out of SEZs
and developers of SEZs. The central government is overhauling direct lax laws in India.
While we do not expect materially adverse developments on this front, any such
development can impair the attractiveness of SEZs for companies and / or business
viability and their valuations.
Land acquisition a risk
MLIFE does not maintain a large land bank for its developmental needs. Instead, it
acquires land and develops it within a relatively short duration of time. Inability to
sustainably replenish land bank can negatively impact its standalone real estate
business.
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