Mahindra Lifespace Developers –Hold- Sharekhan
In Q4FY2010 Mahindra Lifespace Developers (MLD) has reported a stand-alone net profit of Rs23.7 crore (up 68% year on year [yoy]), which is in line with our expectation. The revenues grew by a robust 223.4% to Rs101 crore. The stupendous revenue growth was achieved mainly on account of a low base effect as Q4FY2009 was a poor quarter for the real estate companies in general. On a sequential basis, the revenue dropped by 7.3%.
The pre-sales during the quarter and during the full fiscal were strong and stood at Rs203 crore and Rs590 crore respectively. This provides the revenue visibility for the coming quarters. During the year, three projects were launched, two in Mumbai and one in Chennai. All three received a very good response which supported the pre-sales of the company along with the price hike that the company took in H2FY2010.
The operating profit margin (OPM) improved significantly to 29.4% as against a marginal contraction in the year-ago quarter. The improvement in the margin was mainly on account of the raw material cost that decreased to 63% as a percentage of sales compared to 71.4% a year ago. Further, there was a marked reduction in the other expenditure (down 42.4% yoy). Despite a 223% growth in the top line and the margin expansion, the reported net profit grew by 68% yoy as there was depreciation write-back to the tune of Rs8 crore in the previous quarter. If we remove this one-time item, then the profit for the quarter grew by 304% yoy.
For FY2010 the company has posted revenue and bottom line growth of 94% and 77.6% respectively which are in line with our estimates. Its OPM improved from 11.1% in FY2009 to 26.6% in FY2010 on the back of improved operating leverage. This the highest margin recorded in the last five years and we believe it is sustainable.
On a consolidated basis, the company registered revenue and net profit growth of 22.3% and 24% respectively. The board of directors of the company declared a dividend of 10.5% on the preference share and that of 35% on the equity shares for FY2010.
Currently, MLD has 3.9 million square feet (sq ft) of projects under construction spread over Mumbai, Pune, the National Capital Region (NCR) and Chennai. Further, it has a land bank of 4.1mn sq ft which would be launched over FY2011 and FY2012.
MLD’s integrated townships, MWC (Mahindra World City) Chennai and MWC Jaipur, have been making a slow progress. The company has added a few new customers at MWC Chennai and MCW Jaipur. At MCW Chennai, two more customers have commenced their operations, taking the number of operational clients to 32 out of the total 50 and from the remaining clients nine clients have started the construction. At MWC Jaipur, the company added nine customers during the year taking the total number of customers under lease/memorandum of understanding (MoU) to 36.
We are revising our net asset value (NAV) from Rs497 to Rs506 per share on the back of strong pre-sales witnessed in FY2010 and a marginal price hike that the company took in H2FY2010. Good response to its recently launched projects along with the visibility with regards to its new launches boosts our confidence in the company. However, due to the recent run-up in the stock price, we are downgrading our recommendation on it from buy to HOLD, as our revised price target of Rs506 offers limited upside from the current market price. At the current market price, the stock is trading at 0.96x its NAV and 2x FY2011 stand-alone price/book value (P/BV).
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