Mahindra Lifespace Developers Rating: Buy| Turning the tide with renewed vigour

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 Rs 7-8 bn 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 Rs 25 bn 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 Rs50 bn. MLDL currently has 9msf of inventory across ongoing and upcoming projects, with a revenue potential of Rs 90 bn. 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 (integrated cities and industrial clusters) segment will continue to be a cash contributor, with 2,000 acres of inventory across existing and upcoming locations that is likely to generate surplus cash of `20-22 bn over next 10 years.

We are confident of MLDL’s ability to add projects in the future, given its: (i) strong visibility and recent success, and (ii) 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 `550, implying a potential upside of 17%. Key risks: (i) inability to close land deals and (ii) slowdown in IC&IC leasing.

Strategic focus to revive the real estate vertical: Over the years, MLDL has earned a strong brand recall through its superior execution but has however lagged peers on growth due to lack of aggression. However, given the industry tailwinds and an ongoing shift towards organised developers with solid execution track record, the group is now sensing a strong growth opportunity for its real estate vertical.

Over the last two years, the company has undergone some key management changes including the appointment of Arvind Subramanian as MD & CEO in FY21. New management, with its aligned growth vision, is targeting to grow its presales by 2.5x to Rs 25 bn over the next three years (FY25e) through scaling up launches and augmented business development.