Mahindra Lifespaces, 2Q FY11 results in line with expectations: Daiwa,

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2Q FY11 results in line with expectations: balance sheet remains strong


What has changed?
 Mahindra Lifespace’s revenue and net profit for 2Q FY11 rose by 31% QoQ and
70% QoQ, respectively, on a standalone basis, due mainly to increased residential
sales. The company remains debt-free, with balance-sheet cash of Rs900m.
Impact
 Revenue and profit growth were driven by residential sales. Mahindra
Lifespace announced its 2Q FY11 results on 21 October 2010. Revenue
increased by 31% QoQ to Rs890m and the net profit rose by 70% to Rs247m.
The sequential net-profit increase was driven by improving residential sales and
an increase in other income (up 134% to Rs114m). Other income rose due to
dividends received from subsidiaries. However, the other income is not
reflected in the company’s consolidated profits, as these are derived from its
subsidiaries. On a consolidated basis, revenue rose by 46% YoY to Rs2,107.8m
and the net profit increased by 104% YoY to Rs438.5m.
 The standalone EBITDA margin remained stable quarter-on-quarter. The
EBITDA margin was 26% for 2Q FY11, compared with 24% for 1Q FY11.
 The balance sheet remains strong; rising debtors are a concern to us. The
company’s balance sheet remained debt-free for 2Q FY11, with a cash balance
of Rs900m. However, we are concerned about the increase in debtors from
Rs422m for 2Q FY10 to Rs1,118m for 2Q FY11.
Valuation
 We maintain our six-month target price of Rs504, based on a target NAV
multiple of 1x on our end-FY12 NAV forecast.
Catalysts and action
 We maintain our 2 (Outperform) rating for Mahindra Lifespace. We see the key
share-price catalysts as: 1) the company’s increasing sales of residential units,
and 2) its strong balance sheet.