Sales volume picks up on new launches… • Mahindra Lifespace Developers :: ICICI Securities

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Sales volume picks up on new launches… • Mahindra Lifespace Developers (MLDL) reported 66.3% YoY growth in consolidated topline to | 238.8 crore with healthy EBITDA margin of 28.0% (vs. 25.5% in Q2FY15). Also, consolidated PAT grew 12.4% YoY to | 32.8 crore • In terms of sales volume in the residential segment, the company sold 627 units (0.59 million sq ft) vs. 279 units (0.31 million sq ft) in Q3FY14 across all projects worth | 310 crore • However, Mahindra Lifespace Developers’ (MLDL) standalone numbers were below our estimates where it reported net sales of | 83.7 crore (vs. our estimate: | 114.4 crore) and PAT of | 10.9 crore (vs. our estimate: | 17.6 crore) mainly due to revenue adjustment owing to increase in size of the Aura V project (temporarily impacting negatively to revenue by | 26 crore and PAT by | 6 crore in Q3FY15) Launches pilot affordable projects; adds land in Andheri on JD basis… MLDL launched two pilot affordable housing project in Chennai (0.34 mn sq ft) & Boisar (0.5 mn sq ft) in the last two months where it is targeting 100 units each per month. Additionally, MLDL has acquired a land parcel in Andheri (E) on a joint development model, which has development potential of 0.32 mn sq ft. The launch of affordable housing and forthcoming launches of 5.2 mn sq ft in the next 12-18 months provide strong visibility over sales volumes. This coupled with better sales from MWC Chennai and Jaipur lend us comfort that MLDL’s topline & bottomline will grow at 39.5% & 28.1% CAGR, respectively, in FY14-17E. Balancing SEZ play with different maturity portfolio… MLDL is the first private player in the SEZ space that demonstrated its capability by providing world class infrastructure at the Chennai SEZ (~1550 acres). Enhancing its learning curve, MLDL is leveraging its expertise in the Jaipur SEZ (~3000 acres) and North Chennai SEZ (~750 acres). We also like MLDL’s strategy of balancing out its SEZ portfolio with different maturity, which will not strain its balance sheet. Furthermore, early acquisition of large tracts of land in Jaipur and North Chennai will hugely benefit MLDL’s SEZ business as new players in the SEZ space will have to incur higher land acquisition cost under LARR bill. Reduced leverage & strong parentage also lend us comfort… MLDL’s consolidated net debt to equity has come down from 1.1x in FY14 to 0.7x in Q3FY15 with the sale of the Byculla land. Furthermore, we also derive our comfort in MLDL due to its strong parentage advantage. MLDL is promoted by the Mahindra Group, which has a diversified presence across business. The group has exhibited a strong track record of being the top players across business verticals. The strong management lends us comfort that MLDL will emerge as a dominant player in the real estate space as well. Attractive valuation with strong parentage; maintain BUY… Considering the parentage advantage and ramp up in the project portfolio led by recent land acquisition, we believe current valuations (at 0.6x potential NAV & 1.3x FY16 P/BV) are attractive. We maintain our BUY recommendation with a target price of | 700 (0.8x its potential NAV).

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