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Research
Puravankara Projects - Fresh ambition, fresh upside - Karvy
Posted On : 2013-07-04 21:19:42( TIMEZONE : IST )
Over the past 6 months Puravankara Projects (PPL) has underperformed the BSE Realty index by 16%, partly owing to the slow IT/ITES recovery and partly because of PPL's deteriorating leverage. PPL's stronger financial positioning post IPP & OFS, healthy competitive positioning in the Southern Indian market and successful foray into affordable housing would lead to material recovery over 2HFY14E. We initiate coverage with BUY stance and 70% upside.
Healthy competitive positioning v/s Southern peers
PPL is well positioned in the Southern residential market on account of its superior land bank quality and quantity, access to finance and healthy balance sheet. The micro factors are well supported by conducive Southern markets which remain demand healthy and affordable.
Financial controls up for game change
PPL emerged from the FY08-10 real estate slowdown relatively unscathed (debt/equity being maintained at 0.5-0.6x). Whilst other Southern developers resorted to selling land and diluting equity to repay debt, PPL sold land only in FY10, to meet its debt obligations and did not resort to equity dilution. Moreover, since listing in August 2007, PPL's promoters have not had to pledge their shares. May 2013, IPP & OFS (offer for sale) brings in Rs3bn funds to retire debt bringing down net D/E from 0.8x to 0.55x by FY14E.
Successful foray into affordable housing
In Aug-08, PPL through its 100% subsidiary 'Provident Housing', announced its foray into affordable housing. With 10.5mn sq ft in the development phase in Bengaluru and Chennai, PPL aims to expand across other cities.
Initiate coverage with BUY: Target price Rs138/share
We initiate coverage on PPL with a valuation of Rs138/share. Our valuation is based on 0.65x our end-FY14E NAV forecast. Near-term catalysts for PPL are: (i) strong launch pipeline; (ii) margin expansion due to change in product mix; and (iii) balance sheet de-leveraging.
Key risks
(i) An oversupply may lead to a 8-10% real estate price; (ii) High FSI assumptions (a 1% decline in saleable area would lower our NAV by 1.2%); and (iii) Sustained liquidity tightening could increase borrowing costs by 150-200bps lowering our NAV by 7%.
