Buy Macrotech Developers Ltd For Target Rs.775 - Motilal Oswal
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Faster turnarounds leading to market share gains
* During its IPO in FY21, Macrotech Developers (LODHA) outlined a strategy to expand into the micro-markets of MMR and Pune – where the company had limited or zero presence – via asset-light joint development agreements (JDA).
* Since then LODHA has acquired ~23msf of projects with gross development value (GDV) of INR345b spread across the new markets of Eastern (INR150b) and Western (INR32b) suburbs in Mumbai, Pune (INR61b) and Bengaluru (INR12b) as well as its existing markets of South and Central Mumbai (INR76b) and Thane (INR16b).
* More importantly, out of the 17 projects added to date, the company has already launched 11 projects with acquisition-to-launch (turnaround) time of zero to three quarters.
* Due to faster turnarounds, these JDAs contributed to INR30b or 27% of pre-sales in FY23, up from 6% in FY22. As a result, LODHA’s market share in Mumbai improved to ~10% in FY23 from 7% in FY21. It made steady progress in Pune too and captured 2% market share over the last two years.
* As management expects to continue the business development momentum with targeted addition of INR175b in FY24, the share of JDA projects is also likely to rise gradually to 40% over the next two years.
Completion of key infrastructure projects to enhance contribution from the township segment
* After the pandemic-induced lull, the township segment revived in FY23 and contributed INR23b to pre-sales, which was similar to the run-rate clocked in FY18.
* This revival was despite ~200bp rise in interest rates during the year, which was perceived to have hit the affordable segment severely versus a favorable environment for the same segment in FY18.
* According to the management, key infrastructure projects such as AiroliKatai Naka tunnel, Thane-Dombivali link road, Metro line, second phase of Samruddhi Mahamarg, etc. are expected to improve the connectivity of the township (Palava) with key hubs of MMR and will lead to enhanced traction.
* Management further expects the township location to witness completion of at least one major infrastructure project every year over the next 3-4 years leading to further improvement in real estate absorption in the area.
* With absence of any like-for-like competition around Palava, LODHA will be the biggest beneficiary of this scale-up and thus, it expects the contribution from its township segment to nearly double to INR40b by FY26.
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