April 16, 2023
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KOLTE PATIL DEVELOPERS Stock Research Report by HDFC Securities
Sector: Construction – Residential & Commercial Complexes
CMP Rs. 258, Target Rs. 380 (47% upside potential)
Target Period: 12 Months
KOLTE PATIL DEVELOPERS Stock Research Report: Premiumisation to drive the next leg of growth
We attended the Kolte Patil (KPDL) analyst meet in Pune where it showcased a few of its projects including its flagship township project – Life Republic (LR), its premium project 24K (fully sold-out) and one of its affordable projects Little Earth (a brownfield acquisition of stalled project). In summary, 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 Business Development (BD) capex of INR 4-5bn which is INR 25-30bn worth of GDV. Also, KPDL is expected to achieve INR 27bn presales in FY24, helped by robus priority launches of INR 57bn. We remain constructive on the KPDL growth story and maintain BUY, with an unchanged SOTP-based TP of INR 380.
● Life Republic to continue driving sales volume, ramp up in premium launches: Life Republic is the flagship project of KPDL spread over 397 acres with a total development potential of ~30msf. To date, 8msf has been sold (1.1msf in 9MFY23) in the project and has 2msf of ongoing inventory. Further 10msf 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 ~15msf (Phase 1 development potential) of LR land bank. KPDL plans to add/consolidate the land parcel outside the township boundary through the JDA route and is in talks for 20- 25 acres of land with landowners. With the project being an integrated township, buyers get a 50% rebate on stamp duty of 6% and a 66.6% discount on property tax which incentivizes a potential buyer to make the buying decision.
● Robust priority launches to help meet the presales guidance: KPDL has recorded presales of INR 15bn in 9MFY23 and had guided for INR 23bn for FY23 and expects INR 27bn of presales in FY24 with INR 12bn expected from LR project (1.5-2msf), INR 10bn from other Pune projects and INR 5bn from Mumbai and Bengaluru combined. 24K type premium housing is expected to launch in H2FY24 with 1.2-1.5msf of saleable area. INR 57bn of priority launches are planned in Q1FY24 with Baner and Pimple Nilakh projects of INR 14.5bn and INR 8bn respectively.
● A complementary mix of premium and affordable housing to keep net debt 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. 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 BD activity. It expects to invest INR 4-5bn annually in Business Development activity with a GDV potential of INR 25 30bn. As of Q3FY23, KPDL added INR 14bn worth of GDV and had a BD pipeline of ~INR 50bn. As of Dec’22, Consolidated net debt stood at INR 580mn lower from INR 1.9bn in Sep’22, with net D/E at 0.21x (vs. 0.26x as of Sep-22).
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