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Big plans; execution to be key!

Mahindra Lifespace Developers (MLD) reported a weak H1FY21 performance. H1FY21 sales volume saw de-growth of ~41% YoY to 0.24 million square feet (msf) (~16% decline in Q2 at 0.16 msf) with sales of | 154 crore, down ~32% YoY (~8% YoY growth in Q2 at | 115 crore), with Covid-19 led impact on execution, labour availability. H1FY21 residential revenues de-grew 87.4% YoY to | 69.1 crore with EBITDA loss of | 42 crore. Integrated Cites & Industrial Clusters (IC & IC) segment revenues declined 24.9% YoY to | 61.6 crore with EBITDA of | 34 crore, down 12.8% YoY.

Looking to expand sales volume traction through land purchase

MLD clocked residential sales volume de-growth of ~41% YoY to 0.24 msf (~16% fall in Q2 at 0.16 msf) with sales of | 154 crore, down ~32% YoY (~8% YoY growth in Q2). It launched Happinest Palghar 2 project in Q2FY21 with ~485 units spread over 0.18 msf. Going forward, the company is planning to launch four new residential projects in H2, mainly in Mumbai (2), Pune (1) and Chennai (1) regions. Furthermore, it is looking to expand its residential offering through land purchase with sales potential of ~| 2000 crore and expects few definite agreement signings by Q4FY21. The focus regions would be Bangalore, Mumbai and Pune. In the NCR region, MLD is looking to complete Luminare project (one tower pending) before eyeing newer projects. It has guided for flattish YoY sales volume in FY21 (1.4 msf in FY20) and expects sales value worth | 1000+ crore in FY22. Over the medium term of three to five years, the company has an aggressive target of attaining annual sales of | 2500 crore.

Leases 10.1 acres in H1FY21 under IC & IC segment

MLD leased 10.1 acres in H1FY21 (~1.8 acres in MWC Chennai, ~8 acres in MWC Jaipur). According to the management, the deal pipeline is robust and is receiving lots of enquires from MNC players. However, the transactions are getting delayed with large restrictions on international travel (manufacturing/factory deals require physical presence and site visits). We note that majority of yet to be leased area (~613 acre) is in MWC Jaipur SEZ. We would like to see a meaningful improvement in the integrated cities and industrial cluster business to turn constructive on the same.

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 could enable it to scale up its residential business, which otherwise saw lethargic movement. However, we would await fructification of such deals and traction thereof, before turning constructive. Hence, we maintain our HOLD rating on MLD with a target price of | 300.

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