Buy Mahindra Lifespace; target of Rs 525: ICICI Direct

ICICI Direct’s research report on Mahindra Lifespace

Mahindra Lifespace Developers (MLD) reported Q4FY18 results which were above our expectations on both topline & bottomline front. On volume front, sales volumes grew robustly by 44% sequentially to 0.36 msf Standalone net sales de-grew 51.5% YoY to Rs 145.3 crore (our expectation: Rs 110.2 crore) due to high base impact The EBITDA margins expanded sharply 1030 bps YoY to 10.5% (our expectation: 12.5%) mainly on account of lower project costs as a percentage of sales (67.2% in Q4FY18 vs. 88.2% in Q4FY17) Standalone PAT grew 223.8% YoY to Rs 16.5 crore. It was above our expectation of Rs 11.7 crore due to higher than expected other income (Rs 18.9 crore in Q4FY18 vs. our expectation of Rs 14.0 crore) On a consolidated basis, topline declined 50.5% YoY to Rs 161.8 crore while its bottomline grew robustly by 145.3% YoY to Rs 47.7 crore The board has recommended final dividend of Rs 6/share for FY18

Outlook

We like MLD given its strong parentage, managements focus on improving return ratios through strategic partnerships with IFC & HDFC Capital & comfortable balance sheet (0.2x net D/E). With anticipated pick up in leasing activity at industrial clusters & various high margin projects to hit revenue recognition, we expect revenues to grow 23.0% YoY to Rs 637.2 crore in FY20E and sales volumes to grow to 1.8 msf in FY20E. We have a BUY rating on MLD with TP of Rs 525 (0.7x its potential NAV).

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