Buy Mahindra Lifespace; target of Rs 605: ICICI Direct

ICICI Direct's research report on Mahindra Lifespace Developers

Mahindra Lifespace Developers (MLD) announced its strategic partnership with International Finance Corporation (IFC) for industrial infrastructure development. The partnership is formed to develop multiple industrial parks across Gujarat, Rajasthan and Maharashtra. IFC has made an investment commitment of US$ 50 million to MLD. At first, IFC would make investment in ~350 acre industrial park near Ahmedabad. This strategic partnership comes in the backdrop of company’s focus on improving its return ratios through asset light model for its industrial park business. This strategic partnership bodes well for the company as it would enable infusion of long term growth capital for its integrated cities and industrial cluster business vertical.

Outlook

We like MLD given its strong parentage, management’s focus on improving efficiency, MLD’s affordable housing foray and comfortable balance sheet (0.2x debt to equity). Furthermore, we expect return ratios to improve as the company is adopting asset light model through strategic partnerships with IFC and Sumitomo to develop industrial parks across India. With anticipated pick up in leasing activity at industrial clusters on the back of economic revival and various high margin projects to hit revenue recognition threshold, we anticipate MLD’s bottomline to grow at 25.6% CAGR to Rs 161.2 crore while sales volume are expected to grow at 44.3% CAGR over FY17-19E to 2.0 msf. We maintain our BUY recommendation on the stock with revised target price of Rs 605/ share (0.8x its potential NAV).

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