5 Nov, 2008

Motilal has maintained 'buy' on Mahindra Lifespaces, as the stock trades at 80 per cent discount to its NAV. The brokerage NAV for the company is at Rs 903 per share, which is based on SOTP valuations: (1) Chennai SEZ at Rs 306 per share, (2) Jaipur SEZ at Rs336 per share, (3) residential vertical at Rs158 per share, and (4) cash/other rental assets at Rs 104 per share.

The broerage's NAV does not ascribe any value to (1) incremental 300 acres of land acquired in Chennai adjoining its existing residential SEZ area, (2) 52-acre biotech SEZ at Thane, and (3) 3,000-acre SEZ planned at Karla, Pune. The stock trades at 80% discount to its NAV.

Mahindra Lifespaces' standalone revenues for 2QFY09 declined 12 per centYoY to Rs 30.30 crore, while reported net profit declined 44 per cent YoY to Rs 11.20 crore. However, adjusted net profit grew 113 per cent YoY to Rs 11.2 crore, as 2QFY08 results included extraordinary income of Rs14.6 crore. EBITDA margins expanded 366 basis points YoY to 11.7 per cent (down 290bp QoQ) due to improved margins in its core real estate business.

Mahindra Lifespaces has not provided detailed consolidated financials. According to the company's press release, consolidated total income for 1HFY09 grew 54 per centYoY to Rs170 crore and net profit grew 23 per cent YoY to Rs 32.6 crore.

The contribution of subsidiaries increased from 37 per cent of revenues in 1HFY08 to 53 per cent of revenues in 1HFY09. Further, net profit from subsidiaries was Rs11.60 crore v/s net loss of Rs 60 lakh in 1HFY08 mainly due to improved contribution from its Chennai and Jaipur SEZs.

In 2QFY09, Deutsche Bank and Infosys started their operations at the Jaipur SEZ (at the e-Volve Tech Park). Mahindra Lifespaces has entered into MoUs/lease deeds with 24 customers till date, with ICICI Bank being the latest entrant.

The lease agreements with these anchor tenants have been signed at effective rentals of over Rs30/sf/month (combination of base rentals + maintenance charges). It has already committed 525 acres in the processing area to anchor tenants such as Infosys, Wipro, Tech Mahindra, Deutsche Bank, Nagarro, Nucleus Software, Talbros, and Viteos.

Construction of below ground infrastructure and IT park, e-Volve, is underway. Of the 0.2msf of e-Volve Tech Park, 0.1msf is already completed and operational. We expect the entire future capex requirement at the Jaipur SEZ to be self financed through sale of processing area and the residential vertical.