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Stock goes ex-bonus; remain constructive…

About the stock: Mahindra Lifespace Developers (MLD) is the real estate and infrastructure development business of the Mahindra Group. It has 27.4 million square feet (msf) of completed, ongoing and forthcoming residential projects across seven cities and over 5,000 acres of ongoing, forthcoming projects under development at its integrated development/industrial clusters across four locations.

* The company has outlined five years plans wherein it aims to achieve sales value of | 2500 crore by FY25. For the same, it is targeting four land transactions every year totalling ~| 2,000 crore worth of sales potential

Event

* The Board of Directors of MLD had in July recommended the bonus issue. As per the recommendation, shareholders of the company will get two fully paid-up shares of | 10 each for every one fully paid-up shares of | 10 each

* The stock has gone ex-bonus today. Thus, the stock price has adjusted to one-third

What should investors do?

MLD’s share price has grown at ~16% CAGR over the past five years (from ~| 134 in September 2016 to ~| 281 levels in September 2021). We like MLD given its strong parentage, the management’s focus on expanding its overall scale of operation and a comfortable balance sheet.

The new land purchases are expected to enable it to scale up its residential business. The change in management and execution has started to show initial signs of transformation. We maintain our BUY rating on the company.

Target Price and Valuation: We value MLD at | 325/share.

Key triggers for future price performance:

* Robust launch pipeline and unsold inventory with | 2,593 crore of potential cash flow

* Huge captive land bank and expansion plans to spend | 500 crore each year on land having potential to generate annual sales of ~| 2,000 crore

* Recent management changes lend diverse expertise and scale

* Integrated cities and industrial clusters (IC & IC) business to benefit from PLI/manufacturing push

* Borrowing cost lowest among peers– a huge competitive advantage.

Valuation & Outlook

We like MLD given its strong parentage, the management’s focus on expanding its overall scale of operation and a comfortable balance sheet. The new land purchases are expected to enable it to scale up its residential business. The change in management and execution has started to show initial signs of transformation. Hence, we maintain BUY recommendation with a target price of | 325/share (earlier | 313/share on adjusted basis). The increase in target price is owing to higher premium of 35% (vs. 30% earlier) to our NAV estimates for growth potential.

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