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Puravankara Projects Ltd Overweight
PPRO.BO, PVKP IN
Sep-Q results: Margins weak on account of cost
escalations in old projects. Operational performance is
encouraging
• 2QFY11 results in line with expectations: We assume coverage of
Puavankara with an OW rating and PT of Rs155. Puravankara reported
2QFY11 net income of Rs357MM (-3%Q/Q, -41%Y/Y) in line with our
expectations. While revenues of Rs1.5B were significantly ahead of our
estimate (Rs1.2B), EBITDA margins were surprisingly low at 25.7% (vs.
34.4% in 1Q) primarily on account of cost escalations in pre FY10 launched
projects. Provident accounted for 25% of 2QFY11 sales. Net debt increased
marginally during the Q by Rs700MM. More importantly, we are positively
surprised by disclosure levels in 2Q with company providing
comprehensive sales update for the first time.
• FY11 guidance of 3msf is comfortably achievable –During Sep-Q,
company sold 1.1msf/Rs3.1B (+175%QQ, +48%Y/Y) thereby taking
1HFY11 bookings to 1.5msf/Rs4.2B (up 15%Y/Y). Over 1HFY11, PVKP
has already achieved ~45% of our full year bookings estimate of Rs9.8B.
We believe that the company is on track to achieve or even surpass its full
year guidance of 3msf with (a) some scale up in 2H given seasonally strong
period; (b) Unsold inventory of ~3.4msf across its on-going projects and (b)
planned launches of 18msf over FY11/12.
• Operational performance has improved meaningfully- Sales under
Puravanakara brand have gained significant momentum with area sold in
Sep-Q being >3x of volumes in Jun-Q primarily driven by encouraging
response to its new launch (Skywood). Overall in 2Q, PVKP sold 0.7msf
under Puravankara brand as against 0.2msf sold in 1Q; while Provident
accounted for remaining 0.4msf of sales in 2Q (+77%Q/Q, -31%Y/Y).
Construction activity is also progressing well on its on going projects
(11.3msf) with 70% of the work already complete (vs. 63% in 1Q).
• Investment view– PVKP has underperfromed its closest peer (Sobha) over
the last 12 months by a meaningful 30% despite similar sales run rate and
relatively better funding position (Net D/E – 0.6x). While the stock has
started to catch up (up 35% YTD); we expect the trend to continue given its
robust sales momentum, improved disclosures and positive hiring/salary
trends in the IT sector. Maintain our OW rating.
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