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Embarking on path of expansion…

Mahindra Lifespace Developers (MLD), despite a weak H1FY21 wherein sales value witnessed de-growth of 32% YoY, staged a strong comeback with FY21 sales value reaching | 695 crore, up 4% YoY. The management also walked the talk by acquiring three land parcels at Kalyan, Kanakpura in Bengaluru and Pune with total sales potential of ~| 1500 crore. With launch pipelines, new team in place and further plans of land acquisition, we expect MLD to expand the residential segment, going ahead.

Residential business to expand sharply

Despite a washout Q1FY21 and weak phase of Q2FY21 owing to Covid-19 Pandemic, MLDL has achieved net sales of | 695 crore in FY21 (up from | 670 crore in FY20). The management has shifted gears and outlined a five year plan wherein by FY25, it has a goal to achieve a sales value of | 2500 crore. For the same, MLDL is targeting roughly four land transactions every year aggregating to ~| 2,000 crores worth sales potential.

This will entail annual outlay of ~| 500 crore. MLDL has concluded a) two land transactions during FY21 in Kalyan, Kanakpura in Bengaluru and b) one land deal in April, 2021 in Pimpri Pune (totalling saleable area of ~2.4 msf with sales value potential of ~| 1500 crore), clearly signalling the conversion of intent into action. We expect annual sales volume to grow 1.6x to 1.7 msf in FY23 with annual sales value jumping 1.9x to ~| 1341 crore in FY23E, based on the launch pipelines, with further upsides also possible if further new land is added and launched within this period.

IC & IC business to benefit from PLI, manufacturing push

In FY21, the integrated cities and industrial clusters (IC & IC) business leased 55.6 acres worth | 128.7 crores Also, there was sales of 9.2 acres in FY21 for land outside MWC boundaries. We note that transactions have been delayed in this segment due to travel restrictions in FY21. Going ahead, triggers such as PLI schemes, softening of interest rates and credit availability, lower tax rates for new manufacturing facilities, coupled with global realignment of manufacturing, supply chains will drive IC & IC business. Also, leasing from Ahmedabad will give a push to the overall momentum. The company has targeted an annual leasing run rate of ~| 500 crore from IC & IC business by 2025.

Valuation & Outlook

We like MLDL given its strong parentage, management’s focus on expanding its overall scale of operation and a comfortable balance sheet. The change in management and execution has started to show initial signs of transformation with new land purchase. Group focus (expecting the overall size to expand to US$ 1 bn vs ~375 US$ million) also lends confidence. Hence, we upgrade MLDL to BUY (vs. HOLD earlier) recommendation with a target price of | 675/share (earlier | 300/share).

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