Mahindra Lifespace Developers (MLF) is the Real Estate company of Mahindra
group. The company benefits from the strong pedigree, brand name, trust and
reputation of the Mahindra group. We also believe that over last few years, the
company has shaped and executed its business strategy very well, positioning it for strong
revenue and earnings growth, as well as market share gains over the coming years.
Speedy execution & even speedier sales: The company has diversified its portfolio
well by taking-up multiple small to mid-sized residential projects across multiple
cities (currently 11 projects are under implementation in cities like, Chennai, Delhi
NCR, Nagpur, Pune, Hyderabad, Bangalore, Mumbai). The company’s projectwise
data shows that it has maintained a consistent and relatively fast completion
of the projects (4-4.5 years in Mumbai, other-wise 3-3.5 years across other cities),
compared to other listed/ unlisted developers. More positively, the sales cycle has
in 83% of the projects been even faster than execution cycle, contrary to industry
trends. Even in a market like Delhi NCR, the company’s Luminare P-I project has
sold 73% since 6 quarters of launch, ahead of completed 41%. This strategy of fast
execution and sales in our view is the optimal strategy, as it helps the company in revenue
recognition, inventory cycle (better than Oberoi, DLF), cash flows and profitability. Even
more importantly, it helps in consolidation of the company’s brand image and create
virtuous cycle of continuous fast growth and translate to market share gains.
Strong revenue growth visibility in short-to-long run: MLF as of 1QFY2017 is
pursuing sale of ~4.0mn sq. ft. of total ~20.3mn sq. ft. of its saleable area.
Having sold ~56% of the ongoing projects, we expect MLF to launch 1.48mn
sq.ft. of saleable area (includes, Banerghatta project- 0.23 mn sq.ft., Vivante
project- 0.23 mn sq.ft., Palghar project- 0.36 mn sq.ft.) in a rational way during
3QFY2017-2QFY2018E, across 4 cities. Maturity from existing projects, new
launches give better revenue visibility for the medium-term. We expect MLF to
report an impressive 25.5% consol. adj. sales CAGR during FY2016-18E to
Rs1,300cr. In line with the top-line growth, given the unlevered balance sheet, we
expect consol. profits to grow to Rs147cr in FY2018E. Further, MLF is sitting on a
land bank of 11.4mn sq.ft across 3 cities (majorly from Chennai), which allays
any concern over the long-term revenue growth visibility. Further, in our view,
over longer-term organized, professional run and well funded players which enjoy
strong trust due to reliable and fast execution strategy, will gain market share. This
would be further amplified once the real estate bill is implemented, as players with
already good business practices like MLF would stand to gain the most.
Attractive valuations: Given the ongoing improvement in company’s
fundamentals, strong earnings growth visibility and the long-term growth outlook,
we believe at current valuations of 1.0x FY2018E P/BV, MLF stock looks attractive.
We initiate coverage on MLF with a BUY recommendation and target price of Rs522.

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