Motilal Oswal has given Buy recommendation for Mahindra Lifespace Developers recommended buy rating on the stock with a target price of Rs 550 in its research re with a target price of Rs. 550 in its research report issued on Oct 10, 2022

Motilal Oswal’s research report on Mahindra Lifespace Developers

Mahindra Lifespace Developers (MLDL), a part of Mahindra group, is one of the leading residential developers with a strong presence in Mumbai and Pune. It 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. -Despite being in business for close to three decades, MLDL’s lack of aggression has led to a stagnant pre-sales of INR7-8b over the last seven years and has lagged 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. Management aims to grow its pre-sales by 2.5x to INR25b 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 INR50b. -MLDL currently has 9msf of inventory across ongoing and upcoming projects, with a revenue potential of INR90b. 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, we believe its FY25 pre-sales target can be achieved a year in advance. The IC&IC segment will continue to be a cash contributor, with ~2,000 acres of inventory across existing and upcoming locations that is likely to generate cumulative surplus cash of INR20-22b over next 10 years.

Outlook

We are confident of MLDL’s ability to add projects in the future, given its: 1) strong visibility and recent success, and 2) robust cash flow potential from both the Residential and IC&IC businesses. We initiate coverage on MLDL with a BUY rating and an SoTP-based TP of INR550, implying a potential upside of 17%.

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