Kolte Patil Developers - Saving the good news for next year - Karvy

KPDL share has corrected 30% over past 6months whilst the underlying business dynamics continue to remain strong with (i) new launches on track (ii) new approvals picking pace; (iii) improvement in transparency & (iv) strong earnings growth CAGR of 22% FY13-15E; the correction present good opportunity as KPDL has 5-7% dividend yield at current prices and strong cash-flows support long term capital appreciation. We maintain our BUY on KPDL with target of Rs180 per share (10% discount to NAV of Rs200) offering 134% upside.

Savings good news for next year

After a robust FY13 results with profits crossing Rs1bn (3x FY12 Profits) mark there are huge expectations building up on KPDL to deliver in FY14E. We see fresh triggers playing out next year in FY14E with (i) 2.5-3mnsqft of new sales booking (~ Rs14bn in value terms) (ii) new approvals of 5-6mn sqft (iii) further strengthening in corporate governance, balance sheet & (iv) strong earnings growth.

Focus on strengthening corporate governance, sharing profits

KPDL board has approved appointment of Deloitte Haskins & Sells as statutory auditors subject to shareholders approvals and KPMG as internal auditors. We see this as a progressive step towards improving transparency and corporate governance. Besides this, KPDL is one of few realty companies which has a stated dividend policy of distributing 15-25% of annual profits which at current price imply a 5-7% dividend yield.

Strong balance sheet - not pricing in premium valuation

Despite a strong balance sheet D/E-0.1x (consolidated debt - Rs1,730mn, Net debt Rs611mn), valuation are undemanding at 3.7x FY15EPS. KPDL has a very conservative approach to debt which reflects in strong private equity partnership with ICICI Venture, IL&FS & Portman Holdings, with no guaranteed IRR's structure (only plain vanilla equity). Besides KPDL's new land acquisition have been largely JDA's.

Maintain our BUY stance: NAV Target of Rs180/share

We value KPDL on NAV based target of Rs180 (giving a 10% NAV discount). At CMP the KPDL trades at 3.7xFY15E EPS.

Source : Equity Bulls

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