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Well poised for growth

MLIFE’s Q1FY22 residential sales bookings of Rs1.5bn were muted on account of second Covid wave impact and no new launches during the quarter. However, with the company’s management guiding for four to five new launches in the remainder of FY22E having potential sale value of over Rs10bn, we expect trajectory of sales to meaningfully improve from Q2FY22.

Management has maintained its commitment to to spend Rs5bn each year on land which can potentially generate annual sales of Rs20-25bn and we expect the company’s annual sales bookings value to grow at a 39% CAGR over FY21-25E to Rs25bn. We reiterate our BUY rating on MLIFE with an unchanged March 2022 DCF based target price of Rs939/share valuing the company at a 30% premium to NAV of Rs723/share. Key risks to our rating are a demand slowdown in the Indian residential market and rising interest rates in India.

* Muted quarter on account of Covid impact, traction to improve going ahead: MLIFE reported Q1FY22 residential sales of Rs1.5bn vs. Rs3.5bn clocked in Q4FY21 and Rs0.4bn in Q1FY21 which were impacted owing to the second Covid wave in India. However, with 4-5 launches having total booking value of over Rs10bn set to be launched in the remainder of FY22E, we expect trajectory of sales to meaningfully improve from Q2FY22. The launches will be across Chennai, MMR, Pune, Bengaluru and NCR.

As per the company management, it is targeting addition of three to four new land parcels in FY22E and each year thereafter which will entail annual land spend of Rs5bn and can generate annual sales value of Rs20-25bn. The company has demonstrated its intent with the addition of three new land parcels in FY21 having potential sale value of Rs15bn. The company’s land bank focus is mainly on the MMR and Pune markets where it plans to acquire and launch several projects while the Bengaluru market will see the company undertaking one to two projects at a time.

* Annual sales expected to grow 3-4x by FY25E: We expect MLIFE to clock Rs12.3bn of sales bookings in FY22E and expect annual sales to touch Rs25bn by FY25E implying a sales value CAGR of 39% over FY21-25E. Given the company’s strong corporate brand and presence in five of the major Tier 1 residential markets in India which account for over 80% of India’s residential sales value, we believe this is easily achievable assuming that the new land bank additions come through.

* Thane land parcel may add significant value if approvals come through: MLIFE has an unencumbered land parcel of 68acres along the Ghodbunder Road in Thane, MMR where current residential prices hover between Rs7,000-8,000/psf and this project, if launched, can potentially have saleable area of ~10msf. While the company is working towards getting this land parcel ready for launch sometime towards the end of FY23E, we await approvals for the project coming through before incorporating this in our estimates.

* Opportunity to grow further post 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. Beyond FY25E, the company has huge scope to grow considering that it may have just over 1% residential market share in Tier 1 cities by FY25E.

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