While Puravankara Projects (PPL) reported muted sales of 0.24 msf in Q4, totalling Rs 130 crore (down 73% q-o-q), collections were strong at R446 crore (best quarter yet) on account of improved handover of projects.
However, net debt remained elevated at R1,550 crore. Continuous land purchases have made operating cash flows inadequate for the purpose of reducing debt. Debt reduction remains the key trigger for the stock, which, at present, is dependent on non-core measures, such as land sales, government refund and, now, possibly a bulk sale of inventory to a PE investor. We have cut our estimates to factor in cost escalation due to further delays in handover, sluggish sales and persistence of high debt. Maintain ‘buy’.
Q4 sales were muted in the absence of new launches and due to a sluggish environment. FY16 sales guidance is set at 4 msf, totalling R1,800-2,000 crore (R1,400 crore in FY15). Collection target is set at R1,800-2,000 crore (R1,460 crore in FY15).
Cost revisions continued in Q4 due to delays in handover of projects, which impacted Ebitda by R56 crore and led to muted operating margin of 23% (vs normalized margin of ~30%). The management expects further cost revisions in Q1FY16 before margin normalizes.
The management stated that it is in advanced talks to sell ~2 msf of ready inventory worth R850 crore in a bulk deal to a PE investor. Any such deal can result in significant cash flows and a stock re-rating.