Macrotech Developers Shares Gain As Morgan Stanley Initiates Coverage With 'Equal-Weight'

Shares of Macrotech Developers Ltd. gained after Morgan Stanley initiated coverage on the real estate developer with an ‘equal-weight’ rating, citing optimism about its business and discounted valuations.

"The real estate developer is focused on growing its core residential business through ongoing projects, new launches from its owned land parcels, and new asset-light joint development agreement/joint venture deals," the research firm said in a Dec. 29 report. "Plus, it is monetising completed inventory, commercial assets and land bank earmarked for digital infrastructure projects."

Together, these provide "good cash flow visibility", which should help in further deleveraging, the report said. "The company aims to be net debt-free in the next couple of years."

According to Morgan Stanley, the real estate developer's stock is trading at a 16% discount to its estimated FY23 net asset value.

Macrotech Developers shares have risen 164% since its listing in April versus a 16% gain in Nifty 50. Therefore, the stock is trading at a 16% discount to Morgan Stanley's NAV against the sector's average discount of 10%, implying full valuation.

The research firm said the valuation also "appears full" in view of the company's concentrated large land bank, current gearing and limited ability to acquire greenfield projects.

Other Highlights

• Deployment of Rs 3,000 crore QIP proceeds in asset-light joint development/joint venture projects would be a defining theme for the company over the next six to eight quarters.

• The company aims to add these projects in under-represented micro markets in Mumbai and in Pune.

• Its new launch pipeline over the next 12 months includes 5.9 million square feet of owned projects and 1.9 million sqft of joint development.

• Firm has a launch potential of 57 million sqft, largely in extended suburbs, and 500 acres for digital infrastructure.

• Estimates two-year sales and Ebitda CAGR of 15% and 18%, respectively, for FY2023-24.

• Firm's sales target of Rs 9,000 crore for FY22 could rise to Rs 20,000 crore over the next four to five years, bolstered by joint development and ventures.

Shares of Macrotech Developers rose as much as 4.54%, the biggest intraday gain in four sessions, to Rs 1,269.75 apiece on Wednesday. The stock closed with 1.93% gains at Rs 1,238.05. Morgan Stanley has set a target price at Rs 1,312 apiece, an implied potential upside of 8% from Tuesday’s close.

Of the 11 analysts tracking the company, nine maintain 'buy' and two recommend 'sell', according to Bloomberg data. The overall consensus price implies a potential upside of 2.6%.

According to Morgan Stanley:

Upside Triggers

• Strong industry tailwinds.

• Sharp increase in selling prices.

• Strong new project acquisition.

• Potential for any equity raise.

Downside Risks

• Omicron-led market disruption.

• Slower-than-targeted JDA/JV project addition.

• Slower balance sheet repair.

• Sharp increase in input prices.