Mahindra Lifespace Developers shifts gear; charts aggressive growth plans

The company, which lagged peers Godrej Properties and Prestige Estates Projects, seeks to invest Rs 500 cr every year in buying land parcels for new projects

Mahindra Lifespace Developers, the real estate company of Mahindra group, is changing gear after it lagged peers such as Godrej Properties and Prestige Estates Projects, which expanded aggressively in the last decade.

The company is looking to invest Rs 500 crore every year in buying land parcels to develop new projects, the company's managing director and CEO Arvind Subramanian said. Analysts expect its sales bookings value to grow 39 per cent on compounded annual growth rate (CAGR) basis between FY21 and FY25.

Third wave permitting, the company expects to have new residential launches in every one of its current markets--Chennai, Bengaluru, Pune, Mumbai and NCR. It has signed three land deals in recent months and expects to bring all of these to market over the next four quarters, he said.

Subramanian said the company is getting aggressive due to four factors--shift towards branded players with good track records, access to capital and cost of funds skewed towards companies with strong governance, land owners preferring to tie up with formal sector developers and talent moving to good companies with growth opportunities.

"We have a stated intent of growing to Rs 2,500 crore of sales in our residential business and Rs 500 crore of leasing in our industrial parks by FY25. We have strengthened our leadership team and our business processes over the past year, and invested in consumer insight and digital technology to set ourselves on course for this growth," he said.

While Subramanian became managing director and CEO a year ago, it recently hired Rajaram Pai as chief business  officer.

Land buys:

In the segments that it operates in, land and approvals comprise roughly 25 per cent of sales value, and that implies it will be investing around Rs 500 crore each year in land, he said. "The projects we will invest in would be ready to market and sized in a manner where we can complete the development within around four and a half years from land acquisition.  This will allow us to cycle cash quicker,” he added.

The company plans to fund its land acquisitions through a combination of internal accrual and moderate levels of debt, he said , adding that the company has a strong balance sheet with almost zero net debt.  “Our collections have stayed strong even through the challenging times over the past year,” he said.

He said while land valuations have remained steady in prime locations , landowners are now more open to deferred payment structures. "Most of our land transactions are structured such that the responsibility of approvals lies with the landowner, or a significant amount of the pay-out for the land is linked to the completion of approvals.  We are also evaluating attractive joint development opportunities," he said.

Even companies such as Godrej Properties said that the land owners are more amenable to doing deals with good developers.

Investors and analysts have also endorsed the change in company's strategy and gains from it

The company’s stock gained 85 per cent since the beginning of this calendar year.

ICICI Securities has initiated coverage on Mahindra Lifespace Developers with a buy rating and target price of Rs939.

"While the company has always benefited from the parentage of the Mahindra Group, a lack of aggression has resulted in Mahindra Life’s residential business remaining stagnant with annual sales volumes of just 1-1.7 million sq ft and sales value of Rs700 crore-1000 crore over FY17-21. However, with the current MD and CEO, Mr Arvind Subramanian at the helm for a year and a new set of business heads, the company is well poised to grow its business in the medium term," Adhidev Chattopadhyay, vice president, equity research, real estate at ICICI Securities.

Given the company’s strong corporate brand and presence in five of the major Tier 1 residential markets in the country which account for over 80 per cent of India’s residential sales value, Chattopadhyay believes this is easily achievable assuming that the new land bank additions come through.

He expects the company to clock Rs1230 crore of sales bookings in FY22 and expect annual sales to touch Rs2500 crore by FY25 implying a sales value CAGR of 39 per cent over FY21-25.