Buy Macrotech Developers Ltd For Target Rs.1,428 - Edelweiss Financial Services
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Q3FY22 sales: Scaling new heights
Clocking pre-sales of ~INR26bn (up 40% YoY/30% QoQ), its best in the past twelve quarters, Lodha Developers (Macrotech) sustained its strong performance into Q3FY22. The company has maintained it’s ~INR90bn pre-sales guidance for FY22. Net debt for the India business declined to ~INR99bn (~INR125bn in Q2FY22). The company added six JDA projects with GDV of ~INR100bn during the quarter.
With the housing cycle likely turning, we expect the sales momentum to remain healthy going ahead. We factor in the recent QIP and the strong pace of business development. Maintain ‘BUY’ with revised target price of INR1,428 (INR1,223 earlier).
Sales momentum sustains; guidance maintained
New sales value grew 40% YoY to ~INR26bn; this was despite the base quarter benefiting from reduced stamp duty in Mumbai. 9mFY22 sales at ~INR56bn are up 62% YoY. The company has maintained its sales guidance of ~INR90bn for FY22; this means it will have to notch up sales of ~INR34bn in Q4FY22, growth of ~36% YoY (considering Q4FY21 sales of ~INR25bn). We believe Lodha can achieve this, considering a revival in Mumbai’s housing demand aided by asset monetisation.
UK projects – best ever quarterly sales
The Grosvenor Square project achieved pre-sales of GBP177mn during the quarter (GBP110mn in Q2FY22); the company expects the project to be fully sold out well ahead of the business plan target of Q4FY24. The Lincoln Square project achieved pre-sales of GBP14mn (GBP35mn during Q2FY22). Lodha expects to repay the USD225mn bond in the next four months from the sale proceeds, well in advance of its scheduled maturity of March 2023.
Business development continues unabated
The company added six new JDA projects spanning ~4.8msf and with a GDV of ~INR100bn during the quarter. Since the IPO, it has signed JDAs for eleven projects with cumulative GDV of ~INR145bn.
Outlook and valuation: Well-placed for growth; maintain ‘BUY’
As highlighted in our comprehensive sector report Real Estate - The Charge of the Consolidating Brigade, RERA-driven consolidation is throwing up growth opportunities for organised players such as Lodha.
Revival in housing demand (refer to Hot Property - Rising like a phoenix), Lodha’s leadership position in MMR, robust business development performance and ready inventory liquidation are likely to culminate in robust cash flows going ahead. Faster land monetisation at Palava, portfolio growth, geographical diversification and annuity asset sale can be potential stock catalysts. We incorporate the recent QIP and the business development progress; maintain ‘BUY/SN’ with target price of INR1,428 (on a par with Jun-23E based NAV of INR1,428).
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