Maintain BUY on Kolte Patil Developers - All eyes on launches - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

KPDL's relative underperformance continued in 2QFY21 with pre-sales of 0.35mn sqft (-30/+13% YoY/QoQ), at a value of Rs 1.9bn. Life Republic project in Pune continues to dominate the pre-sales (29% of pre-sales). Collections were also lower-than-expected at Rs 2bn (-35% YoY). On the positive side, labour availability has improved to 80% and collections in October (Rs 1.1bn) were at pre-COVID level. With strong launch pipeline, management expects to see rebound in pre-sales in 2HFY21. We maintain BUY on KPDL, with an unchanged target price of Rs 240, given (a) comfortable balance sheet (net D/E 0.5x), (b) robust launch pipeline (~4.5mn sqft) and (c) affordable valuation. Delay in demand recovery is a key risk to our estimates.

Revenue misses estimates: KPDL reported revenue at Rs 646mn, decline of 66/54% YoY/QoQ and miss of 69% on our estimates on slower-than-expected recovery in execution. Besides, operating margin was negative on lower revenue and lower margin projects. Consequently, the company reported loss at Rs 219mn, against our estimated profit of Rs 159mn. With improvement in labour availability, management hopes to cover the lost ground in 2HFY21. Since the adoption of CCM method, revenue recognition has been lumpy. On POCM basis, revenue fell by 44% YoY and loss was at Rs 120mn (vs Rs 240mn profit in 2QFY20).

Muted recovery in pre-sales: KPDL reported pre-sales at 0.35msf (-30/+13% YoY/QoQ), with average realization of Rs 5,517/sf. Bookings were mainly driven by Life Republic and Ivy projects in Pune. The company faced headwinds in the Bengaluru market as it reported sales of 0.03msf during the quarter. New launches in 2HFY21 to drive pre-sales recovery.

New launches key for rebound in sales: After no new launches in the last six quarters, KPDL is planning to launch nine projects in the next three quarters, across Mumbai, Pune and Bengaluru, and across categories, with saleable area of ~4.5msf and topline potential of Rs 41bn. Basis management commentary, Apart from these launches, business developments opportunities are being evaluated but focus remains on being asset-light. We believe coming launches are crucial for recovery in sales.

Lean balance sheet provides comfort: Excluding the structured credit, consolidated net debt stood at Rs 4.5bn (vs Rs 4.4bn on Jun 20-end), with net D/E at 0.5x. Collections have grown sequentially, from Rs 1bn in 1QFY21 to Rs 2bn in this quarter, and has further improved in October to pre-COVID level. KPDL generated positive operating cash flow of Rs 748mn during 1HFY21. We expect debt to remain at similar level on rebound in collections.

Shares of KOLTE-PATIL DEVELOPERS LTD. was last trading in BSE at Rs.167.7 as compared to the previous close of Rs. 170.2. The total number of shares traded during the day was 5856 in over 363 trades.

The stock hit an intraday high of Rs. 169.5 and intraday low of 165. The net turnover during the day was Rs. 981757.

Source : Equity Bulls

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