Stock Data:
| Ticker | PURVA |
| Exchange | NSE |
| Industry | Real Estate |
Price Performance:
| Last 5 days | -3.61% |
| YTD | -30.05% |
| Last 12 months | +7.45% |
Why is the stock price falling?
Puravankara reported the highest ever first-quarter sales of INR 513 crores from ongoing projects with a total area sold standing at 0.69 million square feet. However, net profit plummeted by 78% to nearly INR 35 crore, dampened by one-off gains in the year-ago quarter whereas on the Q-o-Q basis, net profit rose 258%. Total income also fell to INR 297.35 crore in the first quarter of this fiscal from INR 542.12 crore a year ago. Meanwhile, operating inflows stood at INR 667 crore up 16% Q-o-Q basis. Though with the falling economy, the market conditions were little arduous but the customer sentiments were very positive and with the real estate market revamping itself, the company is poised to do well and improvise its topline.
Management Commentary:
“We believe India’s real estate will continue to witness sustained growth momentum, which will be fueled by favorable market forces, government measures, and positive customer sentiment. We are delighted that the new financial year has begun on a positive note, with the Company achieving its highest ever sales in the first quarter of any financial year. And this is remarkable as it has been achieved in an inflationary environment and without any new launches. Despite the challenging environment, we see positive customer sentiments, improved affordability, and heightened aspiration to have good quality homes. We expect to ride on this wave of robust sales, strong demand in the sector, and a stable economy. We are upbeat about our new launches, and we will continue to focus on scaling our operations while maintaining a healthy balance sheet.”
Ashish R Puravankara, CEO and Managing Director
Competitive advantage:
A key leverage, the company has is the optimal use of technology that enhances customer experience for home buyers and faster turnaround of its inventory. Puravankara believes in the fact that “Customer is the king” and hence allocates 1-3% of project costs towards technologies that ensure cost and time efficiencies across enterprise resource planning, project management and customer service. The induction of AI and ML provides them with faster, accurate and precise information about their customers, which helps the company in faster turnaround time of customer queries and inventory. With more facts and data at their disposal, the company can give customized services as per the clients requirements.
About Puravankara Limited:
With over four decades of domain expertise, Puravankara is one of India’s most trusted real estate majors with an established presence in the residential segment (luxury and affordable housing) and in commercial office spaces. The company has completed 77 residential projects and commercial projects, spanning 43.65 msft , primarily across the gateway cities of south and west India with area under Development totaling 24.99 msft and landbank totaling 56.95 msft (Puravankara Group’s economic interest – 43.63 msft).
The company has three major brands: Puravankara, Provident and Purva Land.
- Puravankara (Luxury):
This covers 13% of ongoing projects and 31% of completed projects in the pipeline. Further, the company has 47% in land assets. The selling price is in the range of INR 6000-10,000 / sqft.
- Provident (Affordable Housing):
This covers 11% of ongoing projects and 13% of completed projects in the pipeline. Further, the company has 10% in land assets. The selling price is in the range of INR 5000-6000 / sqft.
- Purva Land:
This brand is the dedicated arm for plotted development and is formed to cater to the evolving needs of homebuyers and offer a highly lucrative investment opportunity. Currently, the unit has 7 projects across 3 cities culminating up to ~5 msft.
| Investors (in %) | June 21 | Sept 21 | Dec 21 | Mar 22 | June 22 |
| Consolidated Promoter Stake | 75 | 75 | 75 | 75 | 75 |
| FIIs | 16.33 | 16.37 | 16.31 | 16.38 | 16.35 |
| DIIs | 1.73 | 1.93 | 2.03 | 1.98 | 1.90 |
| Public | 6.94 | 6.70 | 6.66 | 6.64 | 6.75 |
Digital Initiatives:
Apart from using AI/ML and Big Data to grow its sales, the company does not shy away from using technology to evolve constantly. They have signed with SAP to adopt their latest offering – RISE with S/4 Hana Cloud ERP, and engaged IBM as an implementation partner for better customer offerings and experience by way of a dedicated application for bookings, transactions etc.
Funding Partnership with IFC, IFC EAF:
IFC, a member of the World Bank Group, and IFC Emerging Asia Fund (EAF) will invest USD 76 million in an affordable housing platform of the company.
Further Investments:
The Bengaluru-based developer’s unit Purva Asset Management has launched INR 750 crore alternative investment fund (AIF), to invest in affordable housing projects as well as plotted developments. It has already received INR 200 crore commitments from investors. The AIF will fund 6-8 mid-sized projects for affordable housing with a four-year development target.
Cash Flows:
As on 30th June 2022, the balance collections from sold units in all launched projects stood at INR 2,550 Crore. Combined with the unsold receivables from launched projects of INR 4,394 Crore, the projected operating surplus of INR 4,095 Crore on the launched portfolio compares favorably against the current outstanding net debt of INR 1,889 Crore.
Starworth Infrastructure and Construction Limited:
The company owns a wholly owned subsidiary focused on technology enabled construction solutions. On this front, they design-build, Civil and MEP Capabilities for a wide variety of real estate and infrastructure projects. Currently they have an order book of more than INR 1000 Cr , growing third party clients. The business is focused on three key areas – Precast, Special projects and Buildings. On the special projects end, the company is executing 23 Bangalore metro stations, Taj at the Bangalore international airport. Further, the company has recently taken another contract with Taj GVK. Not only this but, the company has also collaborated with Jindal steel for building their blast furnace. The company is expanding aggressively in this niche as they have also added ITC in their clients portfolio.
Land Parcels:
The company’s current land bank of 57 million square feet is spread across south and west. The further growth which is increased acquisition activity is happening in majorly five markets, which are Bangalore, Chennai, Hyderabad, Mumbai and Pune and these are the markets where the company wants to establish themselves deeper. Other markets like Kochi, Coimbatore, Goa, Mangalore seem opportunistic to the company and as per the management , they have strength and understand the local environment in such markets as they have delivered multiple projects in these areas. The company further states that it is going to be very dominant in the South as the values are lower compared to the West, specifically the Mumbai market. Going forward, the company expects almost 40-45% sales coming from the West market.
Putting its legacy issues behind:
The company has been successful in bringing down its ready stock of residential units by 67% in the last two years, its sales volume from under-construction projects have increased by 51% in the year ended March 2022 and net debt has reduced by about INR 900 crore in the last three years. As per the CEO of the company – “We are now looking at projects where I monetise the investments, get my equity out and re-deploy that further. We are back in that cycle and it means that our return on capital employed will continue to improve as I will start getting a lot of my equity unlocked from these investments as projects start getting monetised.”
Growth factor:
The company has a strong launch pipeline of 13 million square feets saleable area by FY23 which would entail sales of almost 5 million square feet in FY23 compared to an average of 3 million square feet historically. It has de-leveraged its balance sheet, liquidated completed inventory and created strong management bandwidth which would aid in benefitting from industry consolidation especially in South-Western markets. Further, it is re-entering the Mumbai market with a successful launch while building a commercial platform for steady income. It has a huge paid up land bank of 58 msf to provide sustainable growth.
Falling Inventory to support Cash Flows:
When any Real Estate company opens for inventory sale in a year, they typically sell about 50% to 60% of that and then it starts lagging, because the choice of inventory comes down and then they add more inventory and then sell again 50 % to 60% in the year and so that is the general cycle of any project. But this mounting inventory is bad as this does not result in sales and is kept as another unit on the books of the company. Hence, for any real estate company the falling inventory is a sign of positive cash flow churning in. The same can be witnessed in the inventory levels of Puravankara, which have been falling over the past few years since they changed their way of doing business.
Real Estate market:
According to the Indian Brand Equity Foundation (IBEF), the India real estate market is expected to exhibit a CAGR of 9.60% during 2022-2027. The sector in India is expected to reach US$ 1 trillion in market size by 2030, up from US$ 200 billion in 2021 and contribute 13% to the country’s GDP by 2025. Retail, hospitality, and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs. India’s real estate sector saw over 1,700 acres of land deals in the top 7 cities in the past 1 year.
Foreign investments in the commercial real estate sector were at US$ 10.3 billion from 2017-21. As of February 2022, developers expect demand for office spaces in SEZs to shoot up after the replacement of the existing SEZs act. So with the revamping economy, the real estate sector is poised to do well in the upcoming few years. So all in all, with the growing demand for commercial and residential space, the real estate sector is poised to do well in the upcoming few years.
Our View:
Puravankara Limited pursued aggressive expansion in the past few years which has created a strong growth platform. The company’s robust balance sheet, consistent cash flows and manageable debt to equity makes it a key player in the realty sector especially in the South-West market. To scale up its operation rapidly, the company has employed over 5,200 laborers on its site which is only increasing by the day. As per the management, they plan to sell a minimum of 3000 units this year but the cash flows for most of it will start flowing from the third and fourth quarter. We believe India’s real estate will continue to witness sustained growth momentum, which will be fueled by favorable market forces, government measures, and positive customer sentiment and hence this will provide Puravankara with a strong growth momentum. Keeping this on note we advise to add the current stock in your portfolio with a long term view of 3-5 years.