MOS initiates coverage on Mahindra Lifespace with a BUY rating and target price of Rs 550

Mumbai: Motilal Oswal Securities (MOS) recently initiated coverage on Mahindra Lifespace Developers (MLDL) where they spoke about their strategic focus to revive the real estate vertical, strengthening project pipeline and business development capability.

MLDL is a part of the Mahindra group and has a strong presence in Mumbai and Pune and is gradually expanding its footprint in Bengaluru. MLDL also operates the Integrated City & Industrial Cluster (IC&IC) segment in which it monetizes the land bank by providing plug-and-play industrial infrastructure for manufacturing units.

The note mentioned that despite being in business for close to three decades, MLDL’s lack of aggression had led to stagnant pre-sales of Rs700-800cr over the last seven years and had lagged behind its peers in terms of growth. However, given the industry tailwinds and shift towards branded developers, Mahindra group is now gearing up to unlock the growth potential in its real estate vertical and has also undergone some key senior management changes including the appointment of Mr. Arvind Subramanian as MD & CEO in FY21.

On growth outlook the note mentioned that management aims to grow its pre-sales by 2.5x to 2,500cr in the next three years (FY25E) by scaling up launches and project additions. The company has already added 9msf of projects over the last three years in its core markets and is further evaluating projects worth Rs 5,000cr. The current revenue potential of these projects is around Rs 9,000cr. It is also looking to unlock 68 acres on Ghodbunder Road (Thane), which should add 8-10msf to its project pipeline. Given the strong pipeline, Motilal Oswal believes that MLDL FY25 pre-sales target can be achieved a year in advance.

On the IC&IC segment, MOS believes that it will continue to be a cash contributor with ~2,000 acres of inventory across existing and upcoming locations that are likely to generate cumulative surplus cash of 2,000cr-2,200cr over the next decade.

MOS in its note also mentioned that they were confident of MLDL’s ability to add projects in the future, given its strong visibility and recent success, robust cash flow potential from both the residential and IC&IC businesses.

MOS has initiated coverage on MLDL with a BUY rating and a SoTP-based TP of INR550, implying a potential upside of 17%. The key risks to their analysis were MLDL’s inability to close land deals and slowdown in their IC&IC leasing segment.