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Mahindra Life Space Developer (MLIFE)
Property
Sales better than expected; revenue recognition drags. MLIFE reported revenues at
Rs815 mn (+20% yoy, -50% qoq) and PAT of Rs171 mn (+18% yoy, -44% qoq). We
retain our ADD rating and increase FY2012-14E net profit by 1-4% while we reduce
our March 2013E target price to Rs450/share (Rs470/share earlier) due to a marginally
longer working capital cycle. We retain our valuation estimates for the Chennai (DCFbased)
and Jaipur MWC (1X P/BV) and our WACC at 16%.
Lesser-than-expected revenue recognition impacts reported numbers
MLIFE reported revenues of Rs815 mn (+20% yoy, -50% qoq) versus our expectation of Rs1,437
mn, EBITDA of Rs172 mn (+6% yoy, -57%qoq, 55%) and PAT of Rs171 mn (+18% yoy, -44%
qoq) versus our expectation of Rs279 mn. For the first time since 1QFY10, EBIDTA margin fell
below 22% and came in at 21.2%, a decline of 347 bps over 4QFY11 margin and 276 bps from
1QFY11 margin. Revenue recognition declined qoq due to absence of projects (Eminente Angelica
and Aura Phase 2) crossing revenue recognition threshold. Staff costs as a proportion of sales
increased to 7% in 1QFY12 versus 3% in 4QFY11 which was the main driver of margin decline.
Residential sales remain healthy though pick-up in Jaipur MWC is still elusive
MLIFE had a 36% growth in sales volume qoq selling 0.34 mn sq. ft (sales of Rs1.7 bn) in 1QFY12
versus 0.25 mn sq. ft (sales of Rs1.2 bn) in 4QFY11. Average sales realization came in at
Rs5,060/sq. ft versus Rs4,760/sq. ft in 4QFY11. MLIFE has launched two projects in 1QFY12 – (1)
Aura Phase 3 at in Gurgaon (85% sold) which contributed to bulk of the sales in 1QFY12 and (2)
Royal Ivy at Kanjur Marg in Mumbai (0.25 mn sq. ft) in June.
At MWC Jaipur, total customers remained stagnant qoq at 34 though numbers of operational
customers increased to five (versus three as of end-FY2011) while only eight are in development
stage now versus 11 earlier.
Retain ADD rating; cut target price marginally led by higher debt assumption
We retain our ADD rating and downgrade target price marginally to Rs450/share led by reducing
our FY2013E cash and liquid investments to Rs3 bn versus Rs3.8 bn due to (1) longer land holding
period and (2) a marginally longer working capital cycle while (3) retaining our valuation estimates
for the Chennai and Jaipur SEZ. Key risks to our recommendation are (1) macro risks to demand
and pricing in Mumbai and (2) uncertainty caused by DTC impacting progress at World Cities. We
see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign full DCFbased
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 Rs450 comprises Rs167/share
for the World City business.
Residential sales volume up 36% qoq
Despite a sector-wide concern on volumes, MLIFE’s residential volume sales grew 36% qoq
to 0.34 mn sq. ft in 1QFY12 at an average realization of Rs5,059/sq. ft versus 0.25 mn sq. ft
at an average realization of Rs4,760/sq. ft in 4QFY11. A large part of these volumes would
likely be Aura – III at Gurgaon but with an average rate over Rs5,000/sq. ft, we would expect
the balance sales from Mumbai (Splendour II) and Eminente Angelica. In fact, as per our
channel checks, MLIFE has actually taken a price increase for their Splendour projects.
The table below gives the status of MLIFE’s projects at end-3QFY11 and end-4QFY11 (the
presentation for 1QFY12 is not available yet). Based on this we can make the following
observations:
MLIFE had sold 79% of its ongoing residential projects at end-4QFY11 vs. 70% at end-
3QFY11.
The company had enjoyed qoq price increases in its Chennai projects in 4QFY11 - Aqualily
Villas (10%), Iris Court Phas1 (5%) and Aqualily Apartments (4%), though Iris Court must
have sold only a few units at this hiked price.
While MLIFE has delayed targeted completion across projects (exhibit below) as of end-
4QFY11, we would await data from MLIFE if there are any further delays which could
lead to lengthening of the cash flow and revenue recognition cycle.
MLIFE has likely launched over 0.5 mn sq. ft across the two projects it launched in
1QFY12 – Aura III at Gurgaon which is 85% sold and Royal IVY at KanjurMarg, Mumbai
in June 2011.
We reduce NAV marginally to Rs450/share from Rs470/share on lower cash
assumption
We retain our ADD rating and downgrade target price marginally to Rs450/share led by
reducing our FY2013E cash and liquid investments to Rs3 bn versus Rs3.8 bn due to (1)
longer land holding period and (2) a marginally longer working capital cycle while (3)
retaining our valuation estimates for the Chennai and Jaipur SEZ.
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 Rs450
comprises Rs167/share for the World City 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 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 at 16%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mahindra Life Space Developer (MLIFE)
Property
Sales better than expected; revenue recognition drags. MLIFE reported revenues at
Rs815 mn (+20% yoy, -50% qoq) and PAT of Rs171 mn (+18% yoy, -44% qoq). We
retain our ADD rating and increase FY2012-14E net profit by 1-4% while we reduce
our March 2013E target price to Rs450/share (Rs470/share earlier) due to a marginally
longer working capital cycle. We retain our valuation estimates for the Chennai (DCFbased)
and Jaipur MWC (1X P/BV) and our WACC at 16%.
Lesser-than-expected revenue recognition impacts reported numbers
MLIFE reported revenues of Rs815 mn (+20% yoy, -50% qoq) versus our expectation of Rs1,437
mn, EBITDA of Rs172 mn (+6% yoy, -57%qoq, 55%) and PAT of Rs171 mn (+18% yoy, -44%
qoq) versus our expectation of Rs279 mn. For the first time since 1QFY10, EBIDTA margin fell
below 22% and came in at 21.2%, a decline of 347 bps over 4QFY11 margin and 276 bps from
1QFY11 margin. Revenue recognition declined qoq due to absence of projects (Eminente Angelica
and Aura Phase 2) crossing revenue recognition threshold. Staff costs as a proportion of sales
increased to 7% in 1QFY12 versus 3% in 4QFY11 which was the main driver of margin decline.
Residential sales remain healthy though pick-up in Jaipur MWC is still elusive
MLIFE had a 36% growth in sales volume qoq selling 0.34 mn sq. ft (sales of Rs1.7 bn) in 1QFY12
versus 0.25 mn sq. ft (sales of Rs1.2 bn) in 4QFY11. Average sales realization came in at
Rs5,060/sq. ft versus Rs4,760/sq. ft in 4QFY11. MLIFE has launched two projects in 1QFY12 – (1)
Aura Phase 3 at in Gurgaon (85% sold) which contributed to bulk of the sales in 1QFY12 and (2)
Royal Ivy at Kanjur Marg in Mumbai (0.25 mn sq. ft) in June.
At MWC Jaipur, total customers remained stagnant qoq at 34 though numbers of operational
customers increased to five (versus three as of end-FY2011) while only eight are in development
stage now versus 11 earlier.
Retain ADD rating; cut target price marginally led by higher debt assumption
We retain our ADD rating and downgrade target price marginally to Rs450/share led by reducing
our FY2013E cash and liquid investments to Rs3 bn versus Rs3.8 bn due to (1) longer land holding
period and (2) a marginally longer working capital cycle while (3) retaining our valuation estimates
for the Chennai and Jaipur SEZ. Key risks to our recommendation are (1) macro risks to demand
and pricing in Mumbai and (2) uncertainty caused by DTC impacting progress at World Cities. We
see possible upsides from Jaipur SEZ as we value Jaipur SEZ at 1X P/B and would assign full DCFbased
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 Rs450 comprises Rs167/share
for the World City business.
Residential sales volume up 36% qoq
Despite a sector-wide concern on volumes, MLIFE’s residential volume sales grew 36% qoq
to 0.34 mn sq. ft in 1QFY12 at an average realization of Rs5,059/sq. ft versus 0.25 mn sq. ft
at an average realization of Rs4,760/sq. ft in 4QFY11. A large part of these volumes would
likely be Aura – III at Gurgaon but with an average rate over Rs5,000/sq. ft, we would expect
the balance sales from Mumbai (Splendour II) and Eminente Angelica. In fact, as per our
channel checks, MLIFE has actually taken a price increase for their Splendour projects.
The table below gives the status of MLIFE’s projects at end-3QFY11 and end-4QFY11 (the
presentation for 1QFY12 is not available yet). Based on this we can make the following
observations:
MLIFE had sold 79% of its ongoing residential projects at end-4QFY11 vs. 70% at end-
3QFY11.
The company had enjoyed qoq price increases in its Chennai projects in 4QFY11 - Aqualily
Villas (10%), Iris Court Phas1 (5%) and Aqualily Apartments (4%), though Iris Court must
have sold only a few units at this hiked price.
While MLIFE has delayed targeted completion across projects (exhibit below) as of end-
4QFY11, we would await data from MLIFE if there are any further delays which could
lead to lengthening of the cash flow and revenue recognition cycle.
MLIFE has likely launched over 0.5 mn sq. ft across the two projects it launched in
1QFY12 – Aura III at Gurgaon which is 85% sold and Royal IVY at KanjurMarg, Mumbai
in June 2011.
We reduce NAV marginally to Rs450/share from Rs470/share on lower cash
assumption
We retain our ADD rating and downgrade target price marginally to Rs450/share led by
reducing our FY2013E cash and liquid investments to Rs3 bn versus Rs3.8 bn due to (1)
longer land holding period and (2) a marginally longer working capital cycle while (3)
retaining our valuation estimates for the Chennai and Jaipur SEZ.
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 Rs450
comprises Rs167/share for the World City 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 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 at 16%
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