Mahindra Lifespace goes aggressive in buying land parcels for new projects

Mahindra Lifespace Develo­pers, the real estate company of the Mahindra group, is changing gear after it lagged behind peers such as Godrej Properties and Prestige Estat­es Projects as they 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, managing director (MD) and chief executive officer (CEO) Arvind Subra­manian said. Analysts expect its sales bookings value to grow 39 per cent on compound annual growth rate (CAGR) basis between FY21 and FY25.

Despite the third wave, the company expects to have new residential launches in all its current markets — Chennai, Bengaluru, Pune, Mumbai and National Capital Region (NCR). 

It has signed three land deals in recent months and expects to bring all of these to the 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 record, access to capital 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 stated our 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 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 MD and CEO a year ago, the company recently hired Rajaram Pai as chief business officer.

In the segments that the company operates, 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, according to Subramanian.

“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 after 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 accruals 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,” said Subramanian.

He further 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 payout 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 land owners are more amenable to doing deals with good developers. 

Investors and analysts have also endorsed change in the 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 Rs 939. “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 Rs 700-1,000 crore over FY17-21. How­ever, with the current MD and CEO at the helm for a year and with a new set of business heads, the company is well poised to grow its business in the medium term,” said Adhidev Chattopadhyay, vice-president, equity research, real estate, at ICICI Securities.