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Momentum sustains in festive season

Macrotech Developers (LODHA) achieved Q3FY22 India business sales bookings of Rs26.1bn vs. Isec estimate of Rs23.9bn (up 40% YoY and 30% QoQ) as the sales momentum seen in Q2FY22 continued into the festive season in Oct-Nov’21. The company has achieved 9MFY22 sales bookings of Rs55.7bn in its India business and we believe that it is on track to achieve its FY22 sales guidance of Rs90bn (Isec estimate at Rs87.7bn). Further, the company signed six new JDA signings in Q3FY22 having GDV of Rs100bn and the recent QIP issuance of Rs40bn has resulted in India business net debt reducing to Rs99.3bn. We retain our ADD rating with a revised target price of Rs1,304/share (earlier Rs1,129) incorporating Nov’21 QIP issue of Rs40bn and valuing the company at a 30% premium to our Mar’22 NAV of Rs1,003/share considering value accretion from new JDA signings in Q3FY22. Key risks are a demand slowdown in the MMR market and rising interest rates in India.

* Q3FY22 sees strong QoQ improvement in sales bookings: LODHA clocked Q3FY22 India business sales bookings worth Rs26.1bn vs. Isec estimate of Rs23.9bn (up 40% YoY and 30% QoQ) as the sales momentum seen in Q2FY22 continued into the festive season in Oct-Nov’21. In Q3FY22, the company has done two launches in MMR – new phase at Premier Compound in Palava Phase 2, MMR having total saleable area of 2.0msf and GDV of Rs12.2bn and Woods, Kandivali, MMR having total saleable area of 1.2msf with GDV of Rs15.0bn. India business collections of Rs21.3bn were up 44% YoY and 11% QoQ. Another positive was the company achieving Q3FY22 sales bookings of GBP191mn or Rs19bn in its London projects at Grosvenor Square (GBP177mn) and Lincoln Square (GBP14mn) during the quarter.

* QIP fund raise brings down India debt to below Rs100bn: The company’s India business net debt reduced by Rs25.5bn QoQ to Rs99.3bn in Dec;21 from Rs125bn in Sep’21 aided by the QIP issuance of Rs40bn in Nov’21. With the company having added another six new projects through the JDA route in Q3FY22 spread across 4.8msf with potential GDV of Rs100bn, we believe that payments to land owners may have been partially funded through QIP proceeds. Further, we believe that the company may have availed the BMC’s 50% premium benefit waiver in Q3FY22 which was valid till the end of Dec’21 and may have resulted in bunching up of approval costs.

* On track to achieve FY22E India business sales guidance of Rs90bn: As per our channel checks, the company is set to launch the final tower at its Park, Worli project named “Codename 2024” in Jan’22. The company has achieved 9MFY22 sales bookings of Rs55.7bn in its India business and we believe that it is on track to achieve its FY22 sales guidance of Rs90bn (Isec estimate at Rs87.7bn). While this implies Q4FY22 sales bookings of over Rs30bn, we believe that continued momentum in residential sales and logistics/warehousing vertical may enable the company to achieve its guidance. Any adverse impact from a third Covid wave is the key risk to achieving the guidance.

* Valuations: We retain our ADD rating with a revised target price of Rs1,304/share (earlier Rs1,129) incorporating Nov’21 QIP issue of Rs40bn and valuing the company at a 30% premium to our Mar’22 NAV of Rs1,003/share considering value accretion from new JDA signings in Q3FY22. Our GAV of Rs565bn includes Rs344bn for FY23-30E post-taxFCFF, Rs201bn for company’s land acres and Rs20bn from UK project surplus. Adjusted for FY22E India net debt of Rs83bn, we arrive at our NAV of Rs483bn or Rs1,003/share.

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