PURAVANKARA - PINC

 SUMMARY

 

• Puravankara Projects Ltd. (PPL) is a Tier I realty player with a strong presence in residential segment in Southern markets, primarily in Bangalore. With deliveries of 3.8mn sq.ft. till date and developable land bank of ~127mn sq.ft., PPL ranks amongst the top 10 developers in India.

 

• With its strong brand equity, timely execution of projects and quality construction, it commands a premium for its properties. Its integrated business model and use of modern techniques in construction ensure better quality and timely deliveries.

 

• Though Bangalore constitutes a higher proportion of its projects on hand, PPL is steadily expanding geographically in Hyderabad, Kochi and other such promising Tier II/III locations to derisk its business. Also, it is altering its development mix where the contribution of commercial development is increasing from ~5% currently to ~20% as it scales up its deliveries.

 

• With projects in promising locations in Southern markets and strong scale up  in coming years, PPL's profitability is set to rise exponentially accompanied by a high degree of visibility. We estimate a 71% CAGR in revenues and a 74% CAGR in net profits over FY07-FY10E driven by the ramp up in development of projects and healthy margins flowing from low land acquisition costs.

 

• PPL's balance sheet is the least leveraged amongst the large real estate players in India and underscores its ability to augment its land bank sharply. Considering the above, the quality  of  its current land bank, positioning  in the market, prudent financial management  and the potential scale up  in  deliveries, we  are  of the opinion that the company should trade at a premium of ~10% to its current NAV of Rs639. As this offers a potential upside of 65%, over the CMP of Rs426, we initiate coverage with a 'BUY' recommendation with a target price of Rs705, on an investment horizon of 18 months.