Macrotech Developers - Palava Likely To Be Big Beneficiary Of Infra Boom In MMR: Motilal Oswal

Motilal Oswal Report

Macrotech Developers Ltd. has been delivering a steady performance across key parameters of presales, cash flows, profitability and return ratios for the last two years. It has successfully expanded beyond its core markets and as it further strengthens its position in geographies, we expect this consistency in operational performance to continue.

While ex-Palava business will continue to grow at a steady pace, a bigger delta in value is likely to emerge from Palava, which is expected to witness a surge in volumes as well as pricing due to the factors discussed above. 

As per Macrotech Developers, Palava’s ~4300-acre land provides over 600 msf of residential development potential. However, we assume a portion of that to be monetized as industrial land sales. We value 250 msf of residential land to be monetized over the next three decades at Rs 515 billion and during this period, pricing would reach at par with nearby markets - implying an 8% CAGR in realization.

The infrastructure upgrades, along with strong focus on increasing the share of its premium segment, can lead to higher price growth. Thus, a sensitivity analysis with a CAGR of 8-12% in realization yields a value of Rs 515-670 billion or $6-8 billion.

We use our usual DCF-based method for ex-Palava residential segment and arrive at a value of ~Rs 1,100 billion, assuming WACC of 11% and a terminal growth rate of 5%.

Accordingly, we raise the fair value to Rs 1,705 billion or Rs 1,770 per share (versus Rs 1,415 earlier), indicating 14% upside potential. Reiterate Buy.

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