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Land bank addition expands growth visibility…

About the stock: Mahindra Lifespace Developers (MLD) is the real estate and infrastructure development business of the Mahindra Group. It has 28.2 msf of completed, ongoing and forthcoming residential projects across seven cities and over 5,000 acres of ongoing and forthcoming projects under development at its integrated developments / industrial clusters across four locations.

Event: MLD has proposed to acquire freehold land of ~9.24 acres at Kandivali (East), Mumbai from Mahindra and Mahindra.

* The aggregate consideration for the land is at | 365 crore (~| 40 crore/acre –similar to prevailing rates) to be paid in tranches and interest of 7% per annum payable on unpaid principal. The project would will offer ~1 mn sq ft of carpet area (~1.7 mn of saleable area) and is expected to be launched in FY23 end, subject to approvals (we bake in launch in FY24)

* The project would be NAV accretive and add ~| 455 crore of post-tax NAV (~| 30/share) to the overall residential segment, assuming launched rate of ~13000/sq feet on saleable area, and development period of five years. We expect project to deliver over | 2500 crore of sale value & 30%+ margins

What should investors do? MLD’s share price has grown at ~24% CAGR over past five years (from ~| 108 in February 2017 to ~| 311 levels in February 2022).

* We maintain our BUY rating on the company

Target Price and Valuation: We value MLD at | 380/share.

Key triggers for future price performance:

* Land deal pipeline remains robust at | 8,000 crore. We believe that land acquisition target (spend of | 500 crore each year on land having potential to generate annual sales of ~| 2,000 crore) can surprise on the upside if the conversion of land pipeline is decent and quick

* Robust launch pipeline and unsold inventory with | 2,628 crore of potential cash flow coupled with huge captive land bank will drive sales growth

* IC& IC business to benefit from PLI/manufacturing push

Alternate Stock Idea: Besides MLD, we like Brigade in the real estate space.

* Play on robust residential demand and office leasing

* BUY with a target price of | 600

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 change in management and execution has started to show initial signs of transformation. The new land purchases could enable it to scale up its residential business. Hence, we maintain BUY recommendation with a revised target price of | 380/share.

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