Mahindra Lifespace Developers CMP : 94.80
Q1FY09 Results – Key highlights:
Subdued Quarterly Performance:
The top-line for the quarter grew by 38.4% y-o-y to Rs. 48.21 crore. The EBITDA margins were down by 130 bps y-o-y and 2,140 bps q-o-q, due to high construction cost and revenue booking from low margin properties. Net profit was Rs 9.75 crore, 20.1% lower y-o-y but when adjusted for one time gain of 4.87 crore (sale of investment) in Q1FY08 it is up 33.0% y-o-y.
SEZ Update:
1) Chennai SEZ, 20 companies have become operational as of Q1FY09 and current employee base is 8,870. MLL is likely to unlock value from its Chennai SEZ project through development and sales of premium residential and commercial properties. The project has reached an advanced stage of development with the projected employee base expected to be 44,550 in 2010 and this would provide a captive demand for its residential and commercial projects. MLL through its 51:49 JV with Arch capital would start development of ~750 homes over 55 acres in Q3FY09.
2) Jaipur SEZ The Jaipur SEZ is also undergoing rapid development with ~2,600 acre of total 3,000 acre already acquired. The company has received notification for its IT SEZ and operations would commence in Q2FY09. Jaipur SEZ land has been acquired at very attractive price and we believe the project would start contributing significantly to revenues in the next 1-2 years.
3) During 1QFY09, the company received notification for its 52-acre Biotech SEZ in Thane.
Residential Segment Going Strong- MLL launched residential projects in Mumbai and Faridabad in the quarter. MLL led consortium also won a bid to develop 1.6 msf of residential space at Mihan SEZ Nagpur for Rs 330 psf
Valuations:
At the CMP of Rs 467.80, Mahindra Lifespaces is trading at around 17.3x FY09E EPS. MLL had a subdued quarter with lower sales and margins. MLL has a debt of only Rs 285.5 crore in its consolidated books with Rs 246.6 crore being in Jaipur SEZ. It has a D/E ratio of only 0.3x which is a big positive especially in current high interest rate environment.
Looking at the strong growth prospects of all its verticals, we recommend a BUY with a target price of Rs 594. At the target price the stock would be valued at 21.8 x FY09E EPS of Rs 27.29, implying an upside potential of 26.2%.
