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Research
Mahindra Lifespace - Weak approvals dent performance - Edelweiss
Posted On : 2012-11-22 20:37:29( TIMEZONE : IST )
Mahindra Lifespace (MLIFE) reported weak Q2FY13 numbers driven by execution challenges in Gurgaon and Nagpur. A lengthening approvals cycle was a further drag on fresh sales. On the positive side, the company's residential project in Pune was launched and it received encouraging response. Also, visibility on launch of the 1.1msf Hyderabad project has improved. We maintain 'BUY' with NAV/TP of INR477/share.
Execution challenges impact revenue
Q2FY13 revenue, at INR838mn, disappointed due to execution challenges, predominantly in Gurgaon and Nagpur. EBITDA margin, at 18%, was also significantly disheartening against the estimated 30%. Sharply higher other income (INR301mn—sale of apartments, dividends from subsidiaries) led to PAT of INR314mn, 10% higher than estimated. Volumes sold were 0.21msf at a realisation of ~INR4,100psf. H1FY13 transaction value stood at INR1384bn against INR2340bn in H1FY12, registering a weakening sales momentum (driven by weak approvals).
Approvals key; Pune project received favourably
MLIFE has sold ~76% of its ongoing projects (most of the inventory is currently in Bloomdale, Nagpur and Aquilily, Chennai projects). While it has an attractive pipeline of 6msf, approvals remain the key for operational and financial performance as the approval cycle has been severely stretched in recent quarters. On the positive side, Pune residential project was launched with an encouraging response and the Hyderabad project has received key approvals with launch expected in Nov 2012.
Outlook and valuations: Challenges abating; maintain 'BUY'
Though the company has historically performed well—delivered 23% returns since Q1FY13 result—currently, execution and approval challenges are impacting its financial performance. However, challenges are abating (pick up in approvals, water availability for construction in Gurgaon) and land acquisition for MWC Jaipur has picked up. We believe MLIFE's strong branding, stable business model and low gearing (net debt/equity of 0.5 as of FY13E) offer 18% upside to the stock (NAV: INR477). Hence, we maintain 'BUY' recommendation on the stock.
