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Riding the growth juggernaut

We initiate a bullish BUY rating on Puravankara Ltd (PURVA) based on following factors: (1) Presales to grow at 20%CAGR over FY23-26E, (2) Debt and Debt Coverage well under control, (3) Strong execution track record over the decade, (4) Strong P&L recognition expected in next 5-7 years, (5) paradigm shift in focus following onboarding of new CEO.

Presales to grow at 20%CAGR over FY23-26E

PURVA is expected to achieve presales of ~10.08msf over Q4FY24-FY26E cumulatively from the 13.14msf available unsold area from ongoing projects (including not open for sale). PURVA currently has 11.55msf of projects under various stages of approvals, expected to be launched in next 9-12months and clock incremental presales of 5.72msf over Q4FY24-FY26. PURVA will sell all projects in next 6years (ongoing + pipeline) and we reckon presales will grow at 20% CAGR over FY23-26E. We estimate PURVA to generate net discounted cashflow of Rs65bn at 13.5%WACC. Given a serious upside risk to our presales/cashflow estimates, we have conservatively spread our estimates over a six-year span.

Controlled Debt & Debt Coverage to boost growth

In last few years, PURVA has systematically managed risk and reduced debt. At FY19- end, net debt was at Rs27.43bn which has dropped to Rs17.41bn by Q3FY24. It is remarkable that the company was executing only 13msf when net debt was at Rs27.43bn but by Q3FY24 end, the debt is at Rs17.41bn but PURVA has 22msf projects under execution. This feat helped debt per square feet drop to Rs791 from Rs2077 in the same span. Under the repayment schedule, company will retire Rs14.55bn debt in next 2 years in the normal course of business. We believe Net D/E should fall further to 0.55x by FY26E form 1.29x in FY23.

Strong execution track record over the decade

Being the one of the top players from Bengaluru, PURVA was always mindful of its brand equity. It has an impeccable track record of delivering projects in time. Presales have grown by 18% over FY16-24. In last decade, many sector players were under tremendous pressure due to lower demand, higher developer commitments, soaring debt, steady accumulation of completed inventory. However, PURVA was executionfocused which helped it protect its brand equity and sail through tough times. Since FY15, PURVA has commendably launched ~30.5msf till Q3FY24 and delivered ~27.7msf over the same span.

Strong P&L recognition in next 5-7 years

PURVA is currently executing 26.37msf and plans to launch another 13.1msf in next 6- 12months which will be recognized in next 4-5 years in a phased manner. P&L will consequently witness strong profitability in next 7years. As per our estimates, PURVA is expected to cumulatively recognize revenue of Rs261.5bn and profit of Rs59.7bn over next 7 years. Given that most projects are on historical land bank margins, they are poised to move up from the 18-22% band to the 30-35% band on an average. Strong profitability will improve the return on equity and capital employed.

Paradigm Shift in Focus under new CEO

Under Mr. Abhishek Kapoor’s 4-year tenure as CEO, company has achieved a paradigm shift in operations. It has reduced debt by selling non-core land parcels and stronger risk assessment/mitigation has seen calibrated launches. PURVA has made it a norm to launch subsequent phases only after 65-70% sale of current phase, which boosts cashflow recognition devoid of the burden of mounting debt.

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