Well placed for recovery
SDL reported operationally weak 4QFY20 with pre-sales of 0.9mn sqft (-20% YoY) as sales in Bengaluru (73% of sales in 4QFY20) fell by 22/20% YoY/QoQ. Pre-sales for FY20 remained flattish at 4.1mn sqft. To add to weak operational performance, SDL evaluated overall portfolio and has recognized 1.93mn sqft of bookings (Rs 12.4bn value and Rs 2bn in collections, ~10% of area under construction) with low/delayed collection as probable cancellation and made it available for sales. Whilst sector as a whole is facing cancellation headwinds, SDL has disclosed same in the results. Silver lining lies in sharp recovery of presales in June near pre-Covid level. We estimate SDL to report industry leading 1QFY21 presales at 60-65% of pre covid levels and collections at ~70%+. SDL with its strong brand positioning, robust unused bank limits (Rs 15bn) and premium positioning in residential segment is well placed to ride COVID headwinds. We maintain BUY with reduced TP to Rs 348/sh (vs Rs 377/sh earlier) to account for higher debt.
* Earnings miss estimates; June-20 presales near pre-Covid level: SDL posted Revenue/EBITDA/PAT of Rs 9.1/1.7/0.5bn, missing our estimates by 3/9/21%. Earnings miss was largely led by lower than expected EBITDA margin. After easing of lock down, work has started on all sites with labor availability of 50% at company level. While April/May presales were weak, in June presales recovered to near normal. We build in 3.5mn sqft/Rs 25bn of pre-sales in FY21E at an average realization of Rs 7,037/sqft.
* 1.93mn sqft of booking recognized as probable cancellation: SDL has recognized 1.93mn sqft/Rs 12.4bn of bookings, spanning across 4-5 years, with low/delayed collection as probable cancellation and has made it available for sales to new customers. Against Rs 12.4bn, SDL has hitherto received Rs 2bn and will part way with money only after finding a new buyer. Company has not recognized any revenue from these bookings so net impact on P&L is likely to be positive due to penalties on refunds. Management doesn’t expect no. of probable cancellation to rise further as they have prudently recognized all slow-moving bookings. These customers were largely end user’s facing issues financially.
* Focus on improving liquidity: Consolidated net debt decreased marginally to Rs 30.2bn (vs Rs 30.9bn on Dec’19), With Rs 0.9bn of cash, Net D/E reduced to 1.24x, falling short of target of 1.2x at FY20 end. With check on capex, investment in land and execution of contractual orderbook, management further wants to reduce Net D/E ratio to 1.1x in FY21E. To conserve cash, company is likely to defer residual land payments. We don’t expect significant outlay on land capex in next 2yrs. SDL capex on rental assets will remain low wrt to overall balance sheet size.
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