Mahindra Lifespaces: Continuity with renewed ambition

28 Jun 2023 , 10:31 AM

Analysts of IIFL Capital Services recently met Amit Kumar Sinha, the new MD & CEO of Mahindra Lifespaces. Key takeaways include: 1) Continued aggression on business development, with increased focus on achieving healthier project IRRs. 2) Realigning focus towards mid-premium and gradually exiting affordable housing. 3) Make IC business net debt free over next 2-3 years and upstream cashflows to residential business. MLIFE’s residential pre-sales have delivered >60% Cagr over FY21-23, and is well on track to achieve its FY25 guidance. Challenges include scaling up profitably and controlling the employee churn.

New CEO Strategy – status quo with ‘tweaks’: 

The new CEO expects to broadly continue with the strategy of his predecessor, albeit has decided to move out of the ‘Happinest’ (affordable housing brand) gradually. New projects are likely to have a GDV of Rs8-10bn each, turnaround time of ~4 years and project IRRs of 18-22%. MLIFE will go deeper within its 3 focus cities of Mumbai, Bangalore and Pune, and may not immediately enter newer markets. Redevelopment will remain the mainstay in Mumbai with many societies now preferring MLIFE.

Growth focus intact: 

MLIFE had guided to FY25 pre-sales of Rs25bn (FY23 Rs18bn achieved) and over the next 5-7 years, it aims >Rs100bn pre-sales. For FY24, MLIFE expects to continue adding at least Rs35bn of GDV (in line with FY22/23), and incurring Rs5-7bn on land spends. On the launches front, MLIFE expects a launch GDV of Rs35-40bn across 9 projects, key being the Kandivali project, Santacruz redevelopment project and new phases in Citadel and Tathawade. MLIFE’s Thane project has received approvals for higher FSI; it is now looking at a significantly higher GDV vs Rs50bn earlier with higher share of residential development.

Margins to improve gradually from here; strong cashflows to support BD: 

MLIFE expects at least 35% gross margins and 25% Ebitda margins on new projects. The current P&L Ebitda margins (-18% in FY23) reflect legacy project costs, which will be a drag for another 2-3 years. OCF generation is expected to be healthy; IC business likely to repay debt (Rs3.3bn) and start upstreaming cashflows to residential business, which can be deployed in business development (BD).