The shares of realty developer Mahindra Lifespaces have been on a tear, gaining 30 per cent since the beginning of this month. The stock is up around 5 per cent today. The company’s improving prospects led by expectations that special economic zone development will get a policy push has been aiding stock price appreciation.
The company’s Mahindra World City in Chennai, set-up in 2002 and spread across 1,500 acres, is India's first integrated business city and corporate India's first operational SEZ. Under this brand, the company has developed over 4,000 acres large format integrated business cities at Chennai and Jaipur, in partnership with the State industrial development agency. Besides manufacturing and office spaces, the company also develops residential and retail units.
SEZ development in the country has been facing rough times due to tax policy changes. The introduction of Minimum Alternate Tax (MAT) of 18.5 per cent in the 2011-12 Budget made it unattractive for companies to be located in a SEZ. However, given the thrust for manufacturing for job creation, it is now widely expected that the new government may favourably consider the industry demand to remove MAT. This step, if implemented, will aid in boosting demand and unlock unutilised capacities in several SEZ units.
Mahindra Lifespaces is likely to benefit from such a move. The company is said to have purchased an additional 550 acres in Chennai to develop its second World City project. Its Chennai SEZ currently has 62 companies and 33,000 employees.
The company also has a large presence in residential property sale, including affordable homes, in multiple tier-1 and many smaller towns. So far, it has developed over 7 million square feet (msf) of residential and commercial real estate in nine cities including Delhi, Mumbai, Bangalore and Chennai. The company plans to launch six projects over the second half of 2014 totalling 3.3 msf.
The recent sale of its five-acre property in Byculla, Mumbai for ₹325 crore is also positive. The company had entered into a joint development agreement with the owner but the project could not start due to disputes with the owner. This could help pare debt. The company’s consolidated net debt increased to around ₹1,200 crore in March 2014 (over 0.9 times equity), up from ₹780 crore in March 2013. Shareholder approval to raise ₹400 crore through qualified investor placement (QIP) was obtained in September 2013 and is yet to be exercised, which could also aid debt reduction.
Mahindra Lifespaces' income from operations dropped marginally to ₹705 crore in 2013-14, down from ₹738 crore in 2012-13. Consolidated net profit declined 29 per cent to ₹100 crore in FY14, compared to a year ago. Net margins were affected due to higher interest costs.