Brokerage house HDFC Securities has retained its bullish outlook on real estate firm Kolte Patil Developers (KPDL) as demand for premium housing has gathered momentum post Covid. The brokerage said that it remains constructive on the stock's growth story and has maintained its ‘buy’ call with a target price of ₹380, indicating a potential upside of over 40 percent.
Stock Price Trend
Shares of the realty firm have given multibagger returns to its investors in the long term. In the past 3 years, the stock rose over 163 percent from its COVID-low of ₹103, hit in March 2020, to currently trade around ₹270. In the past 10 years, the stock has jumped 180 percent.
From its 52-week low of ₹214.05, hit in June 2022, the stock has advanced 26 percent.
However, it has witnessed some correction in the recent past, declining 29 percent from its 52-week high of ₹383.55, hit in October 2022. It is also down 7 percent in the last 1 year. Meanwhile, in 2023 YTD, the stock delivered negative returns. It is down around 3 percent this year so far.
The stock has gained around 6 percent just in April till date on the back of strong inventory. Meanwhile, it lost 7.4 percent and 4.6 percent in March and February 2023, respectively. In January, the stock was up 1 percent.
Sales and Earnings
In the December quarter, the company posted a net loss of ₹26.89 crore versus a profit of ₹5.37 crore in the year-ago period. However, its total income rose 53 percent YoY to ₹374 crore as against ₹244.70 crore in the corresponding period last year.
Despite the loss, the real estate developer reported its highest-ever quarterly sales of ₹716 crore in the December quarter, up 28 percent YoY. In an operational update for Q3FY23, the firm informed that its sales in volume terms were also the highest in a quarter at 1.13 million square feet, up 31 percent versus 0.86 million square feet in the year-ago period.
The company also informed that it has launched 2 million square feet of inventory across six projects in Pune and Mumbai. New launches contributed around 57 percent to the pre-sales value for the quarter. KPDL’s flagship project, Life Republic, crossed the half-million mark to record volumes of 6.62 lakh square feet, it further added in the press release.
Investment Rationale
Life Republic (LR) to continue driving sales volume: The brokerage noted that Life Republic, the flagship project of KPDL, spread over 397 acres with a total development potential of 30 million square feet (msf) will continue driving sales volume.
"Till date, 8 msf has been sold in the project and has a 2 msf of ongoing inventory. Further 10 msf is in the approval pipeline with phase-wise launches expected by Diwali 2023. This project has a global FSI of 1.7 and sufficient FSI to utilize in future development. The project offers a range of products from affordable housing to villas and now with demand momentum strong in the premium segment, a 24K type format of premium housing is part of the launch plan with a total of 8msf earmarked from the 15 msf (Phase 1 development potential) of LR land bank," informed HDFC Securities.
With the project being an integrated township, buyers get a 50 percent rebate on stamp duty of 6 percent and a 66.6 percent discount on property tax which incentivizes a potential buyer to make the buying decision, it further highlighted.
Robust priority launches: The brokerage also stated that KPDL has recorded presales of ₹1500 crore in 9MFY23. The firm had guided for ₹2300 crore for FY23 but expects ₹2700 crore of presales in FY24 with ₹1200 crore expected from the LR project (1.5-2msf), ₹1000 crore from other Pune projects and ₹500 crore from Mumbai and Bengaluru combined, it further mentioned. The 24K type premium housing is also expected to launch in H2FY24 with 1.2-1.5msf of saleable area, also, ₹5700 crore of priority launches are planned in Q1FY24 with Baner and Pimple Nilakh projects of ₹1450 crore and ₹800 crore, respectively, added HDFC.
Debt levels in check: The demand for premium housing has gathered momentum post Covid and KPDL saw robust demand for its premium inventory in the 24K project. Also, with the higher volume in its affordable segment in LR and upcoming higher-margin premium projects, KPDL expects to generate enough cash flow to support its business development (BD) activity, noted HDFC Securities.
The brokerage said that the firm is likely to invest ₹400-500 crore annually in business development activity with a gross development value (GDV) potential of ₹2500-3000 crore. As of Q3FY23, KPDL added ₹1400 crore worth of GDV and had a BD pipeline of ₹5000 crore, it informed. As of Dec’22, consolidated net debt stood at ₹58 crore, lower than ₹190 crore in Sep’22, with net D/E at 0.21x (vs. 0.26x as of Sep-22), highlighted the brokerage.
"KPDL is targeting a higher mix of premium projects (under 24K brand) and higher sale volume affordable housing in LR, Little Earth and other projects; it expects to generate enough cash flow through this mix to support its annual BD capex. Also, KPDL is expected to achieve ₹2700 crore presales in FY24, helped by robust priority launches of ₹5700 crore. We remain constructive on the KPDL growth story and maintain BUY," said the brokerage.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
