Hold Mahindra Lifespace Developers; target of Rs 410: ICICI Direct

ICICI Direct's research report on Mahindra Lifespace Developers

Mahindra Lifespace Developers (MLD) achieved sales volume growth of 80.6% YoY to 0.65 msf valued at Rs 407 crore. Standalone net sales increased 10.2% YoY to Rs 160.1 crore, much better than our expectation of Rs 109.1 crore. EBITDA margins contracted sharply by 9.5 percentage points (pp) YoY to 1.0% due to a contraction in residential business margins (18.2% in Q4FY19 vs. 30.3% in Q4FY18) and higher un-allocable expenses (Rs 20.8 crore in Q4FY19 vs. Rs 13.2 crore in Q4FY18). Standalone PAT de-grew 64.4% YoY to Rs 5.9 crore on account of a sharp contraction in EBITDA margins. On a consolidated basis, topline grew 44.8% YoY to Rs 234.3 crore while bottomline de-grew 36.9% YoY (47.9% growth QoQ) to Rs 30.4 crore.

Outlook

We like MLD given its strong parentage, management’s focus on improving return ratios through strategic partnerships with IFC, HDFC Capital and a comfortable balance sheet. Besides this, the company is also looking to expand its residential project portfolio. While the management commentary is encouraging on ramping up its residential portfolio, we would like to see more improvement in the industrial cluster business. Hence, we maintain our HOLD recommendation with a target price of Rs 410/share.

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