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Execution of growth plans by new MD a key monitorable

Mahindra Lifespace Developers (MLIFE) has announced the resignation of its current MD & CEO, Mr. Arvind Subramanian who has been helming the company’s operations since May’20. In his place, the Mahindra Group has appointed Mr. Amit Kumar Sinha as the new MD & CEO from May’23 who has been already working with the Mahindra Group as President, Group Strategy since Apr’21 and carries over 18 years experience and was a Senior Partner and Director with Bain & Company prior to joining the Mahindra Group. In an investor concall, the Mahindra Group management reiterated its commitment to 1) achieving MLIFE’s medium term annual sales booking guidance of Rs25bn by FY25E, 2) continuing to pursue business development plans, 3) ensuring continuity of key management personnel across functions in the company, 4) continuing to focus on the key markets of the MMR, Pune and Bengaluru and 5) communicating a longer term growth plan in due course to investors.

Retain BUY, ensuring continuity in growth should not be a major hurdle in our view: The management transition comes at a time when the wheels for growth have been already set in motion and barring any large churn in department heads (sales/marketing/business development/legal/finance), ensuring continuity in growth plans should not be a major hurdle. We retain our BUY rating on MLIFE with an unchanged target price of Rs483/share which incorporates recent project additions and includes a premium to NAV of 50% considering the company’s strong business development pipeline. Key risks are residential demand slowdown and any significant change in growth strategy from management changes/exits

On track to achieve FY25 sales guidance of Rs25bn: MLIFE had concluded three land deals in FY22 aggregating to a total GDV of Rs38bn of which the Dahisar JDA (GDV of Rs10bn) and Kandivali East outright purchase (GDV of Rs25bn) were the major projects. Further in FY23 YTD, the company has added fresh land GDV of Rs31bn, including a Rs5bn maiden society redevelopment project in Santacruz, Mumbai, which takes the cumulative GDV of land bank addition over FY22-FY23YTD to Rs69bn. In FY24, the company is targeting to launch both Mumbai projects (Kandivali, Dahisar and Santa Cruz) along with Citadel, Pune and Hosur Road, Bengaluru. While we expect MLIFE to achieve Rs19-20bn of FY23 sales bookings which implies 58% growth over FY22 sales, given the robust launch pipeline for FY24 along with new project additions, we estimate FY24E and FY25E sales bookings of Rs23.4bn and Rs27.1bn, respectively. Hence, we believe that the company is well on track to achieve its medium-term guidance of Rs25bn of residential sales bookings by FY25.

Opportunity to grow beyond FY25E remains huge: With MLIFE targeting to generate Rs25bn of sales value annually by FY25E at an EBITDA margin in excess of 20%, we believe that this business can potentially generate over Rs5bn of annual operating surplus cash flow (OCF surplus) in 3-4 years’ time. Assigning an 8-10x OCF multiple, MLIFE’s residential business could be worth between Rs40-50bn in the medium term.

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