Maintain BUY on Kolte-Patil Developers - Valuation affordable - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

KPDL reported operationally weak 1QFY21 with pre-sales of 0.31mn sqft (0.67/0.51msf QoQ/YoY), for a presales value of Rs 1.64bn. Life Republic project in Pune continued to garner strong response (45% of pre-sales). Loss of Rs 312mn was driven by fixed cost absorption on lower revenue and low margin projects in mix. COVID-19 shutdown for the most part of April & May-20 also impacted revenue recognition. 1QFY21 collections dipped as expected, and stood at Rs 1.05bn (vs Rs 3.8b/3.6bn QoQ/YoY). We maintain BUY on KPDL as it has a) comfortable liquidity position (Net D/E 0.37x, ready inventory of Rs 2.6bn,) b) strong affordable residential project mix (at average
POCM revenue miss; cost control curtailed loss: In order to maintain continuity, KPDL also report key financials under POCM. On like to like basis, revenue came in at Rs 770mn (-75% YoY, 46% miss), EBITDA at Rs -190mn (vs est. of Rs -125mn) and APAT at Rs -312mn (vs est. of Rs -270mn).

QoQ recovery; continued focus on digital channels for sales: Labor availability is at 55-60% (vs ~40% QoQ) and KPDL expects it to reach 70% by Sept/Oct-20. Given that most of its projects are in areas which are worst affected by pandemic, KPDL ramped up its digital presence, in-line with the industry trend. Response from NRI customers continues to be good, and KPDL is putting in place a dedicated team to cater to same.

FY21 launch pipeline strong: After no new launch in FY20, KPDL is planning to launch seven projects in FY21 across Mumbai and Pune with topline potential of Rs 31bn. Of the four projects planned for Pune, three will be commercial. Three projects planned in Mumbai are redevelopment projects and are for residential/retail. This is to be followed up by Boat Club & Giga projects in FY22. Apart from this pipeline, business development (BD) & acquisition deals are being evaluated with strategic focus to remain asset-light, but focus till end-FY21 to be on cash conservation & collections.

Industry trends: KPDL expects overall demand for the residential sector to come down by ~20-25% in the near term, to be offset by the trend of consolidation working in favor of large players with strong balance sheets. Moreover, BD deals, be it revenue/profit sharing, outright sales or platform deals, are now available at better margins/valuations in the wake of COVID-19 as weaker players and land owners find it difficult to manage working capital. More & more processes are moving virtual/digital. ~7-8% of the 2BHK demand is also shifting to 3BHK as WFH is becoming mainstream. Cancellations have been at ~5-10% for the sector at large.

Shares of KOLTE-PATIL DEVELOPERS LTD. was last trading in BSE at Rs.172 as compared to the previous close of Rs. 172.9. The total number of shares traded during the day was 11342 in over 182 trades.

The stock hit an intraday high of Rs. 175.1 and intraday low of 170. The net turnover during the day was Rs. 1956118.

Source : Equity Bulls

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