Kolte Patil zooms 10% as Motilal Oswal gives 'Buy' rating, 34% upside eyed

Shares of the company soared as much as 10.05 per cent to hit an intraday high of Rs 569.05 per share after Motilal Oswal initiated coverage on the real estate developer

Domestic brokerage firm Motilal Oswal on Wednesday initiated coverage on real estate developer Kolte Patil Developers, with a ‘buy’ call, projecting an upside of 34 per cent.

Shares of the company soared as much as 10.05 per cent to hit an intraday high of Rs 569.05 per share following the announcement. 

The 52-week high of the share is Rs 584, according to Bombay Stock Exchange (BSE).

Here are the top 4 factors:

Accelerated business development activity and healthy balance sheet

Kolte Patil Developers has a strong presence regionally and is among the leading real estate developers in Pune, with a growing presence in the Mumbai Metropolitan Region (MMR) and Bengaluru markets. In over three decades of its presence, KPDL has delivered more than 26msf of projects, with another 43msf in the pipeline at various stages (ongoing/upcoming/future). 

Healthy balance sheet

During financial year 2012-2021 (FY12-21), the company’s presales bookings remained stagnant at Rs 1,200-1,300 crore, with occasional spikes in certain years. While the company’s debt-averse strategy (net debt-to-equity <0.5x) constrained its growth, Kolte Patil’s emphasis on execution and cash flows ensured that balance sheet further strengthened to a net cash position as of December 2023, brokerage firm Motilal Oswal said in a note.

Strong pipeline

Improved demand momentum, regulatory breakthroughs in MMR with respect to society redevelopment projects, and strategic changes to its township project led to a 36 per cent compound annual growth rate (CAGR) in pre-sales during financial year 2021-2023 (FY21-23). The company now has a robust project pipeline and ample balance sheet capacity to target new projects and maintain growth. It aims to achieve a presales CAGR of 25 per cent in the medium term.

Profitability and cash flows

KPDL’s past track record indicates that future growth will be underpinned by profitability and cash flows. Based on the NPV method, we arrive at a value of INR700, indicating a 34% upside potential. We initiate coverage on the stock with a BUY rating.

However, the Mumbai-based brokerage also flagged key risks which include inability to add new projects as intended, and slowdown in demand.