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Charting out a growth path

Mahindra Lifespaces (MLIFE) had a stable quarter in its residential business with INR 2.5bn of booking values in 3QFY22 (+29% YoY; down 17% QoQ) largely on account of sustenance sales. Over 9MFY22, MLIFE has already touched INR 7bn in bookings (INR 6.95bn in FY21) and is likely to show substantial growth on a full year basis (depending upon launches). In line with its stated objective of 3-4 deals annually, MLIFE management has visibility on deal closures by end FY22 to achieve INR 20-25bn of new project acquisitions for FY22. For FY23, MLIFE already has a strong pipeline of INR 80bn of GDV which can be acquired. Management remains confident of a 25-30% success rate thereby strengthening the project pipeline further. We feel with a strong launch and acquisition pipeline, MLIFE is at the cusp of growth in the residential business. Even the industrial business has started showing traction on increased conversion of enquiries (leased 51acres in 3QFY22; INR 1.4bn; higher than FY21) and momentum is likely to continue. Consequently, cash flows would be reinvested in the lower-gestation and lower-risk residential business, skewing the company’s profile towards that of a residential developer. We maintain ‘BUY’ rating with a Mar’23 TP of 355 (35% upside). Key risks: Delay in acquisitions of new projects.

* Sustenance sales doing well; launches bunched up in 4QFY22: Residential business had a stable quarter with INR 2.5bn of booking values in 3QFY22 (+29% YoY; down 17% QoQ) largely on account of sustenance sales while collections came in at INR 4.69bn (+58% YoY; +1.74x QoQ). MLIFE has an extremely strong launch pipeline for 4QFY22 with Kalyan, MMR (INR 3.5bn of GDV launched), Luminaire, Gurgaon (INR 4bn), Alcove, MMR (INR 1bn) and Lakewoods, Chennai (INR 1bn) being the key projects.

* Project acquisition in full swing: Management has indicated INR 80bn worth of deals are under active discussion for FY23, as MLIFE targets to reach INR 25bn of sales by FY25 (INR 6.95bn in FY21) led by project acquisitions. Out of this INR 80bn, c.50% will be outright purchases, 25% society redevelopment, and rest would be a combination of JDA and distressed deals. In terms of geographical split, 60% of the GDV would come from Mumbai and 40% Pune. Additionally, it is likely to close a few deals to reach INR 20-25bn of acquisitions for FY22.

* Industrial business witnessing traction: In 3QFY22, MLIFE leased 51acres of industrial land (INR 1.4bn; higher than FY21) including i) 3 acres of cancellations at MWC Chennai and ii) 54 acres of leasing to 7 customers at MWC Jaipur. With gradual easing of travel restrictions and higher demand from the manufacturing sector, conversion of enquiries is likely to pick up in the industrial parks business. By FY25, MLIFE targets to have INR 5bn of annual lease income from this segment, aided by new parks in Pune, Ahmedabad and Chennai Phase 2.

* We continue to like MLIFE with a Mar’23 TP of 355: MLIFE remains well-placed for a significant scale-up as the residential demand environment looks strong, especially in the mid-income segment, where MLIFE operates. We maintain ‘BUY’ with a Mar’23 TP of 355 (implying 35% upside). Key risk: Delay in acquisitions.

* Launch pipeline of INR 17bn over next 9 months: MLIFE plans to launch i) additional phases in Happinest Tathawade, Pune, ii) last phase of Alcove, Sakinaka Mumbai, iii) Vicino, Andheri East Mumbai. The project at Kanakpura and Pimpri land parcel will both be launched 1HFY23. MLIFE is also exploring possibilities of a possible launch of plotted development project in Mahindra World City Chennai. The overall inventory expected to be launched over the next three quarters will be in the range of c.INR17bn.

* Details of bookings in 3QFY22: In 3QFY22, a mid-premium business contributed c.72% of sales value and the affordable business contributed to 28% at an average price realization of c. INR 7,900psf. In 3QFY22, launched i) a new phase at Alcove, Mumbai, ii) last block of Happinest Avadi and iii) a villa project in Alibaug and the initial response has been positive. In Aug’21, MLIFE launched the Happinest project at Mahindra World City, Chennai (0.2msf) and sold over 97% of launched inventory in the project.

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