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Puravankara Projects Ltd
Launches finally coming
through; Maintain Buy
Improving outlook, Maintain Buy
We maintain our Buy rating post our meeting with the management, with PO of
Rs125 offering 14% upside. The recent launches and steady Bangalore market
should lead to an exciting FY12 for Puravankara on volumes and cash flow. The
key triggers would be strong response to the recent launches and ramp up in
affordable housing segment. We have lowered our NAV estimate by 8% and EPS
estimate by 10-12% for FY12/13 to factor in flat prices in FY12 against our earlier
expectation of 10% increase. Our price objective is cut from Rs135 to Rs125.
Launches to drive stock performance
Puravankara has finally started delivering on the new launches with three projects
launched in 4Q. This should help it sustain the volume growth of over 25% and
improve cash flow in FY12. We also expect improved cash flows from the nearing
completion projects leading to lower debt in FY12. But the impact of improved
volumes likely will be seen on earnings only from FY13 onwards when these
projects reach revenue recognition stage.
Affordable housing ramp up slower than expected
We had expected much better performance from its affordable housing segment
but the ramp up has been slower than expected with no new launches in last 18
months and visibility on only one more launch in Bangalore. We have therefore
cut back our volume estimate for the segment. But the execution in the current
projects remains strong and should help sustain healthy margin in this segment.
4Q to disappoint on volume
We expect 4QFY11 to disappoint on volume given delay in launches and slower
sales in the current projects due to increase in mortgage rates by over 100bps
since Dec’ 2010. We expect Puravankara to miss its target of 3mn sq ft by 10%
but the recent launches are expected to more than make up in 1QFY12.
Maintain Buy; PO of Rs125
We maintain our Buy rating post our meeting with the management, with PO of
Rs125 offering 14% upside. The recent launches and steady Bangalore market
should lead to an exciting FY12 for Puravankara on volumes and cash flow. The
stock has outperformed the Realty Index in last 6 and 12 months and we expect
the trend to continue going forward as well. The key triggers would be strong
response to the recent launches and ramp up in affordable housing segment. We
have lowered our NAV estimate by 8% to factor in flat prices in FY12 against our
earlier expectation of 10% increase
Launches finally coming through
Puravankara has finally started delivering on the new launches in 4Q with three
projects getting launched in Kochi, Chennai and Bangalore. It has couple of
projects in Bangalore and one in Coimbatore lined up for 1HFY12. These
launches should help sustain volume growth of above 25% in FY12 and FY13
and also help improve cash flows leading to reduction in debt.
Kochi Oceana – Nearing completion, so should be highly cash generative though
the project is small
Chennai Windemere – It is a large project with 4mn sq ft of sale area and should
be a key project driving volume over next 2-3 years.
Purva Midtown – Bangalore East – The project is relatively small in size, but
should see a good response given good location.
Improved volume in current projects to aid cash flows
Puravankara currently has ~3mn sq ft of launched but unsold projects. Most of
these projects are nearing completion with another Rs4bn required to complete
the construction. The sale of this stock at current prices would generate more
than Rs10bn in cash inflow. Therefore as the sales improve in these projects we
expect Puravankara to show much improved cash flow over next 12-15months.
Affordable housing ramp up slower than expected
The ramp up in affordable housing segment has been disappointing given that
Puravankara has launched just two projects in last two years. The sale continues
to be at a steady pace in these projects and is expected to pick up the pace asPuravankara starts delivering the apartments in next 12-15 months. The launch of
the 3rd project in Bangalore has been delayed, but is now expected in 1QFY12
which should help ramp up in this segment. We believe the execution is on track
and should help them sustain healthy margin of over 25% in this segment.
Earnings growth to pick up from FY13
We expect the impact of higher launches to start to become reflected in earnings
from FY13 leading to acceleration of earnings from 22% growth in FY12E to 27%
in FY13E. We have cut our earnings estimate by 10-12% to factor in flat prices in
FY12 and FY13 against our earlier expectation of 10% increase. Due to flat prices
we expect the margin to drop by 100bos for Puravankara.
4Q to disappoint
We expect 4QFY11 to disappoint on volume given delay in launches and slower
sales in the current projects given increase in mortgage rates by over 100bps
since Dec’ 2010. We expect Puravankara to miss its target of 3mn sq ft by 10%
but the recent launches are expected to more than make up in 1QFY12. We have
therefore cut our estimate for FY11 by 9% to factor in lower than expected
earnings in 4Q.
Price objective basis & risk
Puravankara Projects Ltd (XPJVF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs125 is
therefore based on our NAV of Rs147. We expect Puravankara to trade at a
discount of 15% to large developers like DLF on discount to NAV basis, because
of its smaller size and concentration of land bank primarily in one location -
Bangalore. Key assumptions underlying our NAV are WACC of 15.1%,
capitalization rate of 11% and inflation of 5% from FY13 on both selling price and
construction costs. On a P/E basis, at our PO of Rs125, the stock would trade at
16x FY12E earnings. Downside risks are lower than expected volume and delay
in new launches.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Puravankara Projects Ltd
Launches finally coming
through; Maintain Buy
Improving outlook, Maintain Buy
We maintain our Buy rating post our meeting with the management, with PO of
Rs125 offering 14% upside. The recent launches and steady Bangalore market
should lead to an exciting FY12 for Puravankara on volumes and cash flow. The
key triggers would be strong response to the recent launches and ramp up in
affordable housing segment. We have lowered our NAV estimate by 8% and EPS
estimate by 10-12% for FY12/13 to factor in flat prices in FY12 against our earlier
expectation of 10% increase. Our price objective is cut from Rs135 to Rs125.
Launches to drive stock performance
Puravankara has finally started delivering on the new launches with three projects
launched in 4Q. This should help it sustain the volume growth of over 25% and
improve cash flow in FY12. We also expect improved cash flows from the nearing
completion projects leading to lower debt in FY12. But the impact of improved
volumes likely will be seen on earnings only from FY13 onwards when these
projects reach revenue recognition stage.
Affordable housing ramp up slower than expected
We had expected much better performance from its affordable housing segment
but the ramp up has been slower than expected with no new launches in last 18
months and visibility on only one more launch in Bangalore. We have therefore
cut back our volume estimate for the segment. But the execution in the current
projects remains strong and should help sustain healthy margin in this segment.
4Q to disappoint on volume
We expect 4QFY11 to disappoint on volume given delay in launches and slower
sales in the current projects due to increase in mortgage rates by over 100bps
since Dec’ 2010. We expect Puravankara to miss its target of 3mn sq ft by 10%
but the recent launches are expected to more than make up in 1QFY12.
Maintain Buy; PO of Rs125
We maintain our Buy rating post our meeting with the management, with PO of
Rs125 offering 14% upside. The recent launches and steady Bangalore market
should lead to an exciting FY12 for Puravankara on volumes and cash flow. The
stock has outperformed the Realty Index in last 6 and 12 months and we expect
the trend to continue going forward as well. The key triggers would be strong
response to the recent launches and ramp up in affordable housing segment. We
have lowered our NAV estimate by 8% to factor in flat prices in FY12 against our
earlier expectation of 10% increase
Launches finally coming through
Puravankara has finally started delivering on the new launches in 4Q with three
projects getting launched in Kochi, Chennai and Bangalore. It has couple of
projects in Bangalore and one in Coimbatore lined up for 1HFY12. These
launches should help sustain volume growth of above 25% in FY12 and FY13
and also help improve cash flows leading to reduction in debt.
Kochi Oceana – Nearing completion, so should be highly cash generative though
the project is small
Chennai Windemere – It is a large project with 4mn sq ft of sale area and should
be a key project driving volume over next 2-3 years.
Purva Midtown – Bangalore East – The project is relatively small in size, but
should see a good response given good location.
Improved volume in current projects to aid cash flows
Puravankara currently has ~3mn sq ft of launched but unsold projects. Most of
these projects are nearing completion with another Rs4bn required to complete
the construction. The sale of this stock at current prices would generate more
than Rs10bn in cash inflow. Therefore as the sales improve in these projects we
expect Puravankara to show much improved cash flow over next 12-15months.
Affordable housing ramp up slower than expected
The ramp up in affordable housing segment has been disappointing given that
Puravankara has launched just two projects in last two years. The sale continues
to be at a steady pace in these projects and is expected to pick up the pace asPuravankara starts delivering the apartments in next 12-15 months. The launch of
the 3rd project in Bangalore has been delayed, but is now expected in 1QFY12
which should help ramp up in this segment. We believe the execution is on track
and should help them sustain healthy margin of over 25% in this segment.
Earnings growth to pick up from FY13
We expect the impact of higher launches to start to become reflected in earnings
from FY13 leading to acceleration of earnings from 22% growth in FY12E to 27%
in FY13E. We have cut our earnings estimate by 10-12% to factor in flat prices in
FY12 and FY13 against our earlier expectation of 10% increase. Due to flat prices
we expect the margin to drop by 100bos for Puravankara.
4Q to disappoint
We expect 4QFY11 to disappoint on volume given delay in launches and slower
sales in the current projects given increase in mortgage rates by over 100bps
since Dec’ 2010. We expect Puravankara to miss its target of 3mn sq ft by 10%
but the recent launches are expected to more than make up in 1QFY12. We have
therefore cut our estimate for FY11 by 9% to factor in lower than expected
earnings in 4Q.
Price objective basis & risk
Puravankara Projects Ltd (XPJVF)
Our preferred valuation methodology is NAV, calculated by discounting the cash
flows from each of the real estate projects. Our price objective of Rs125 is
therefore based on our NAV of Rs147. We expect Puravankara to trade at a
discount of 15% to large developers like DLF on discount to NAV basis, because
of its smaller size and concentration of land bank primarily in one location -
Bangalore. Key assumptions underlying our NAV are WACC of 15.1%,
capitalization rate of 11% and inflation of 5% from FY13 on both selling price and
construction costs. On a P/E basis, at our PO of Rs125, the stock would trade at
16x FY12E earnings. Downside risks are lower than expected volume and delay
in new launches.
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