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Mahindra Life Space Developer (BUY)
Property
Increase target price but downgrade to ADD. MLIFE reported revenues at Rs1.6 bn
(+62% yoy, +5% qoq) and PAT of Rs305 mn (+29% yoy, -9% qoq). Revenue for
FY2011 came in at Rs4.8 bn (+49% yoy) and PAT at Rs1 bn (+30% yoy). We are
downgrading our recommendation to ADD (from BUY earlier) and increasing our target
price to Rs470/share (Rs435/share earlier) based on March 2013E NAV. We keep our
WACC constant at 16% and increase FY2013E net income by 3%.
Financials exceed expectations, average realization and volumes decline qoq
MLIFE reported revenues of Rs1.6 bn (+62% yoy, +5% qoq, 55% above expectation), EBITDA of
Rs0.4 bn (+36% yoy, -6% qoq, 25% above expectations) and PAT of Rs0.3 bn (+29% yoy, -9%
qoq, 14% above expectations). EBIDTA margins at 24.6% declined 282 bps over 3QFY11 margins
and declined 472 bps from 4QFY10 margins primarily due to increase in other expenditure. MLIFE
has sold 0.25 mn sq. ft of residential area in 4QFY11 (average realization of Rs4,760/sq ft) versus
0.36 mn sq. ft in 4QFY10 (at Rs5,667/sq ft) and 1.2 mn sq. ft in 9MFY11.
Smooth sailing in FY2011E for residential business
MLIFE sold 1.4 mn sq. ft of residential in FY2011 (value of Rs7 bn) versus 1.2 mn sq. ft in FY2010
(value of Rs5.9 bn) which implies that average realizations have gone up by 3%. Revenues are
49% up yoy, EBITDA 44% and earnings 30% yoy.
But progress on World Cities necessary for stock performance
Mahindra World City, Chennai, has added seven customers in FY2011 taking the total to 57 (50 as
of end-FY2011) which includes 35 operational customers (32 as of end-FY2010) and nine who
have started construction. Exports grew 52% yoy to Rs35 bn in FY2011 and it now employs
23,000 people (up from 20,000 as of end-FY2010). Mahindra World City, Jaipur, now has 34
customers (28 at end-3QFY11, 36 as of end-FY2010) with three operational customers (no change
over 3QFY11) and 11 have initiated development (nine at end-3QFY11).
Downgrade to ADD with target price of Rs470/share
We are downgrading our rating to ADD (from BUY earlier) while raising our target price to
Rs470/share (from Rs435/share) factoring in (1) increase in earnings estimates, (2) roll-forward
standalone valuation to March 2013 NAV while (3) retaining our valuation estimates for the
Chennai (DCF-based) and Jaipur MWC (1x BV) and WACC at 16%. Our revised target price
provides an upside of 19% from current market price. Key risks to our recommendation are (1)
macro risk to demand and pricing in Mumbai and (2) uncertainty caused by DTC impacting
progress at World Cities.
Key balance sheet highlights
On the liabilities side, there are two key changes - MLIFE has redeemed preference shares
worth Rs100 mn and has taken on debt of Rs1 bn (nil earlier).
Inventories have declined 40% while debtors have increased 63% from end-2QFY11 -
both are at around 90 days of sales.
Loans and advances have increased to Rs3.3 bn (up 108% yoy and +22% from end-
2QFY11) which could be led by land advances and likely a sign of further land bank
accretion.
We increase NAV to Rs470/share from Rs435/share as we roll forward to FY2013E
We are downgrading our rating to ADD (from BUY earlier) while raising our target price to
Rs470/share factoring in (1) change in earnings estimates, (2) roll-forward standalone
valuation to March 2013 NAV while (3) retaining our valuation estimates for the Chennai
and Jaipur SEZ. Our revised target price provides an upside of 19% from current market
price.
We see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign
full DCF-based value as and when we see (1) clarity on DTC and absorption happening post
that and (2) at least a couple of residential launches in the SEZ. Our target price of Rs470
comprises Rs167/share for SEZ business.
Also, MLIFE has entered into two MoUs with the Government of Gujarat during the recently
held Vibrant Gujarat Summit for the setting up of an Integrated Business City at Dholera
Special Investment Region (in the Delhi Mumbai industrial corridor) and for the setting up of
an Industrial Park near Ahmedabad. Given that these projects are in fairly nascent stage, we
have not factored in any value (positive or negative) for either of these projects. The
Integrated Business City will be spread across 3,000 acres and need investment of Rs20 bn.
Once functional, the facility will have the potential to employ 100,000 people and attract
investments of greater than Rs100 bn. The Industrial Park will be spread across 500 acres
and will be close to an existing commercial center near Ahmedabad. Once fully developed,
the industrial park is expected to create 25,000 jobs and attract investments of over Rs10 bn.
We maintain our WACC estimate to 16%
We change our revenues estimates for FY12 and FY13E by +7% and +14%, respectively,
EBITDA estimates for FY2012 and FY2013 by +0% and +4%, respectively, and net
income estimates for FY2012 and FY2013 by -3% and +3%, respectively. We also
introduce our estimates for FY2014.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra Life Space Developer (BUY)
Property
Increase target price but downgrade to ADD. MLIFE reported revenues at Rs1.6 bn
(+62% yoy, +5% qoq) and PAT of Rs305 mn (+29% yoy, -9% qoq). Revenue for
FY2011 came in at Rs4.8 bn (+49% yoy) and PAT at Rs1 bn (+30% yoy). We are
downgrading our recommendation to ADD (from BUY earlier) and increasing our target
price to Rs470/share (Rs435/share earlier) based on March 2013E NAV. We keep our
WACC constant at 16% and increase FY2013E net income by 3%.
Financials exceed expectations, average realization and volumes decline qoq
MLIFE reported revenues of Rs1.6 bn (+62% yoy, +5% qoq, 55% above expectation), EBITDA of
Rs0.4 bn (+36% yoy, -6% qoq, 25% above expectations) and PAT of Rs0.3 bn (+29% yoy, -9%
qoq, 14% above expectations). EBIDTA margins at 24.6% declined 282 bps over 3QFY11 margins
and declined 472 bps from 4QFY10 margins primarily due to increase in other expenditure. MLIFE
has sold 0.25 mn sq. ft of residential area in 4QFY11 (average realization of Rs4,760/sq ft) versus
0.36 mn sq. ft in 4QFY10 (at Rs5,667/sq ft) and 1.2 mn sq. ft in 9MFY11.
Smooth sailing in FY2011E for residential business
MLIFE sold 1.4 mn sq. ft of residential in FY2011 (value of Rs7 bn) versus 1.2 mn sq. ft in FY2010
(value of Rs5.9 bn) which implies that average realizations have gone up by 3%. Revenues are
49% up yoy, EBITDA 44% and earnings 30% yoy.
But progress on World Cities necessary for stock performance
Mahindra World City, Chennai, has added seven customers in FY2011 taking the total to 57 (50 as
of end-FY2011) which includes 35 operational customers (32 as of end-FY2010) and nine who
have started construction. Exports grew 52% yoy to Rs35 bn in FY2011 and it now employs
23,000 people (up from 20,000 as of end-FY2010). Mahindra World City, Jaipur, now has 34
customers (28 at end-3QFY11, 36 as of end-FY2010) with three operational customers (no change
over 3QFY11) and 11 have initiated development (nine at end-3QFY11).
Downgrade to ADD with target price of Rs470/share
We are downgrading our rating to ADD (from BUY earlier) while raising our target price to
Rs470/share (from Rs435/share) factoring in (1) increase in earnings estimates, (2) roll-forward
standalone valuation to March 2013 NAV while (3) retaining our valuation estimates for the
Chennai (DCF-based) and Jaipur MWC (1x BV) and WACC at 16%. Our revised target price
provides an upside of 19% from current market price. Key risks to our recommendation are (1)
macro risk to demand and pricing in Mumbai and (2) uncertainty caused by DTC impacting
progress at World Cities.
Key balance sheet highlights
On the liabilities side, there are two key changes - MLIFE has redeemed preference shares
worth Rs100 mn and has taken on debt of Rs1 bn (nil earlier).
Inventories have declined 40% while debtors have increased 63% from end-2QFY11 -
both are at around 90 days of sales.
Loans and advances have increased to Rs3.3 bn (up 108% yoy and +22% from end-
2QFY11) which could be led by land advances and likely a sign of further land bank
accretion.
We increase NAV to Rs470/share from Rs435/share as we roll forward to FY2013E
We are downgrading our rating to ADD (from BUY earlier) while raising our target price to
Rs470/share factoring in (1) change in earnings estimates, (2) roll-forward standalone
valuation to March 2013 NAV while (3) retaining our valuation estimates for the Chennai
and Jaipur SEZ. Our revised target price provides an upside of 19% from current market
price.
We see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign
full DCF-based value as and when we see (1) clarity on DTC and absorption happening post
that and (2) at least a couple of residential launches in the SEZ. Our target price of Rs470
comprises Rs167/share for SEZ business.
Also, MLIFE has entered into two MoUs with the Government of Gujarat during the recently
held Vibrant Gujarat Summit for the setting up of an Integrated Business City at Dholera
Special Investment Region (in the Delhi Mumbai industrial corridor) and for the setting up of
an Industrial Park near Ahmedabad. Given that these projects are in fairly nascent stage, we
have not factored in any value (positive or negative) for either of these projects. The
Integrated Business City will be spread across 3,000 acres and need investment of Rs20 bn.
Once functional, the facility will have the potential to employ 100,000 people and attract
investments of greater than Rs100 bn. The Industrial Park will be spread across 500 acres
and will be close to an existing commercial center near Ahmedabad. Once fully developed,
the industrial park is expected to create 25,000 jobs and attract investments of over Rs10 bn.
We maintain our WACC estimate to 16%
We change our revenues estimates for FY12 and FY13E by +7% and +14%, respectively,
EBITDA estimates for FY2012 and FY2013 by +0% and +4%, respectively, and net
income estimates for FY2012 and FY2013 by -3% and +3%, respectively. We also
introduce our estimates for FY2014.
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