Recommendation: Buy
Current price = Rs 454 (at the time of publishing this tip)
Price target: Rs 828
Key points:
- Mahindra Lifespace Developers (MLD) reported a healthy consolidated financial performance during FY2008. The company’s top line grew by 6.8% during the year. The operating profit margin expanded by 14.1% to 28.3% mainly because of an improvement in the operating profit on a standalone basis and of improved margins of Mahindra World City Developers Chennai subsidiary.
- The development of special economic zones (SEZs) at Chennai and Jaipur are well on track. In the Chennai SEZ, the company has leased or committed to lease the entire processing area. In the Jaipur SEZ, the company has acquired 2,600 acre of land at the end of Q1FY2009.
- Its return on capital employed and return on net worth improved by 340 basis points and 440 basis points to 9.4% and 8.2% respectively on account of a significant improvement in the operating margin and an increase in leverage (for return on equity). As the company has made investments in land acquisition, the RoCE and the ROE are expected to improve in the coming years.
- MLD will continue to focus on residential properties in FY2009. The company also sees huge opportunities in developing integrated infrastructure in industrial parks and expects to formalise and start implementing new projects in this area in FY2009. Thus, the management has an optimistic outlook for FY2009.
- At the current market price, the stock trades at 0.6x its NAV, 19.3x FY2009 earnings estimate and 8.2x FY2010 earnings estimate.
- I would recommend a strong Buy call on this stock with a price target of Rs 828 over next 6 months.
