FREE

Management Speak: Puravankara Projects (Unrated) - On the rise

We present key highlights of our meeting with the management of Puravankara Projects (Puravankara).

• A leading residential player in South India: Puravankara is a leading player in South India’s real estate market, with focus on the residential segment. The company primarily focuses on developing and selling residential projects under two brands - Puravankara and Provident. Over last few years, its dependence on Bangalore market has declined from 75% in FY14 to 63% in FY17 of land area under development.  It has ~95 million square feet (msf) of potential saleable area (includes ongoing projects) acquired historically at low costs.
• New launches in Bangalore slow post RERA implementation: As per Jones La Lasalle report, new launches in Bangalore have fallen by 75%, primarily due to RERA, GST implementation and slow approvals. The fall in new launches have had a positive impact on 9MFY18 sales, which grew 32% yoy to Rs2.03msf, which bodes well for Puravankara.
• Monetizing unsold inventory to pare debt: Puravankara has Rs14bn of unsold inventory in projects completed/nearing completion. The company expects to monetize a substantial part of the inventory in FY19 and use the proceeds to reduce debt on its books (total debt as on books is Rs22bn).
• Management guides robust launch pipeline: Management has guided for a robust launch pipeline of 9.5msf over the next four quarters, which it believes will aid in pre-sales and profitability over next three four years. The company is hopeful that of organized real estate developers like them would immensely benefit post RERA implementation.
• Expected improvement in cash flows should ease concerns on debt: Puravankara’s large low-cost land bank (~97msf), strong new launch pipeline (~14msf over FY18) and strong sales momentum provide comfort on sustainable growth, as per management. The company expects sharp improvement in FY19 and FY20 cash flows, which it believes should ease concerns on debt. The stock currently trades at 1.2x FY19 P/B and 10.4x EV/EBIDTA (based on consensus estimates)– at a discount to peers.