'Buy' rating projected for KPDL stocks
Company on a growth trajectory with orders lined up in the Covid-induced situation
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THE analysts recommend a 'BUY' rating with NAV-based price target of Rs 319 and 17 per cent upside potential for the Pune-based real estate company Kolte Patil Developers Ltd (KPDL) with robust project pipeline of 4.5million square feet to be launched over the next six-nine months,is set to report more than three msf sales for the first time in its three-decade long history, according to Edelweiss Wealth Research analysis. The company is aiming to expand its sales base to 5msf by FY23-24E and add deals worth 10-12msf over the next 12-18 months,
Despite the aggressive deal additions, the company is expected to maintain its balance sheet resilience, led by potential net cash flows of Rs 2,000crore (post-tax, KPDL share) from ongoing/upcoming projects over the next three to five years. The valuation gap and upside potential from deal additions makes KPDL an attractive stock in the current real estate upcycle, say the analysts.
Improved affordability provides a multi-year upcycle opportunity for the sector. Additionally, realized importance of owning a home and additional space requirement given the WFH scenario has influenced buying decisions.
This bodes well for players like KPDL who have the execution capability and balance sheet strength to scale up their business to benefit from this upcycle opportunity.
Robust launch pipeline and prospective deal are additions to fuel growth. KPDL is now looking to expand its sales base. Plans are afoot to launch robust 4.5msf of projects over the next six to nine months, which should lead to 10msf of saleable pipeline. It is expected that KPDL will report over three msf of sales in FY22E for the first time in its history. Further, KPDL is aiming to be among the top-5 residential real estate players in India over the next two to three years with annual sales of 5msf. As a result, the company is looking to add 10-12msf of projects over the next 12-18 months across markets.
Also, its plans to scale up its operations in Bengaluru and Mumbai from over 0.25msf to 1.5msf or 30 per cent of targeted sales over the next 2-3 years.
Cash flow efficiencies and asset light strategy are expected to support the balance sheet resilience.
Since 2017, the company is extremely focused on cash flows. This has resulted in collections of Rs 1,368 crore (12 per cent CAGR rise) and operating cash flows (OCF) of more than Rs 250crore in FY20. With strong cash flows, KPDL managed to give PE exits and further improved future cash flow potential through higher economic interest, the analysts say.
KPDL's cash flow strength should continue over the next 4-5 years, thanks to potential net cash flows of Rs 2,000crore from ongoing/upcoming projects. Valuation is attractive given potential cash flows and accretive deal additions. KPDL is expected to generate Rs 3,800crore net cash flows from its ongoing, upcoming and future (land bank) projects over the next 8-10 years.
Analysts project 33 per cent CAGR in operating cash flow (OCF) over FY21-23E driven by the following factors: Healthy recovery in collections (40 per cent CAGR over FY21-23E) post 29 per cent decline YoY in FY21E.
(Edelweiss Wealth Research)
