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Peninsula Land: Conference call extracts - Views on News from Equitymaster
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Peninsula Land: Conference call extracts
Aug 10, 2010

Peninsula Land announced its 1QFY11 results recently. Net sales increased 29% YoY to Rs 1,483 m in 1Q FY11. Top Line growth was aided by revenue recognition from Peninsula Business Park. However, operating profits declined 22% YoY due to one-off adjustments in the cost structure. Despite the fall in operating profits, bottom line increased 52% YoY during the quarter due to increase in interest income and decline in tax expenses.

Here are the key takeaways from the conference call:-

  • Revenue break up for the quarter is as follows:-

    Particulars Amt ( Rs m)
    Peninsula Business Park 990
    Centre Point 185
    Peninsula Technopark 170
    Ashok Towers 80
    Miscellaneous 58
    Total 1483

  • As far as the balance payment for Peninsula Business Park (Tower 1) from Alok Realtors is concerned, the company is still struggling to garner the balance cash of Rs 4.75 bn. During the previous call, management had indicated some payment in the month of June. However, it did not receive anything in this quarter. Considering Alok Industries’ financial position, it appears the payment schedule may get delayed and this is likely to impact the cash flow position of the company.

  • Management plans to commence work on the Napean Sea road project in the upcoming quarter. During the previous quarter, the company acquired 30,000 sq ft of small area in Napean Sea road, South Mumbai, for redevelopment purposes. Although the area is small, it is at one of the prime locations in Mumbai. This should enable the company to fetch prices in excess of Rs 30,000 per sq ft.

  • Management maintains status quo on 12.5 m sq ft of area in Goa SEZ and does not foresee anything material happening in the near future. The company is saddled with this idle land bank for quite some time now. Unless something material happens in near future, the excess capital continues to remain tied up with no incremental returns

  • The current cash and debt on the books stand at Rs 4,600 m and Rs 4,900 m, respectively

  • Tower 2 of Peninsula Business Park is on the verge of completion and management plans to have a soft launch pretty soon. The company has indicated rates in the region of Rs 20,000 per sq ft. We believe this is slightly on the conservative side considering the recent improvement in the overall demand scenario especially in South Mumbai.

  • The company plans to launch new projects in Pune, Goa, Nashik and Hyderabad by the end of this quarter. It should be noted that the company has already acquired land parcels in these cities.

  • As majority of the projects are on the verge of completion, the company is aggressively looking out for acquisitions of land parcels in and around Mumbai. Funding requirements should not be an issue as the company has strong cash reserves on its balance sheet and a low D/E ratio (if it plans a leveraged expansion). Further, the company also has an enabling resolution to raise money via QIP, if needed. Management plans to invest Rs 20-25 bn in the market for acquisition of land parcels. Out of the proposed investment, the company has already invested Rs 1,750 m during the quarter.
Our View
One of the major concerns regarding the company was insufficient land parcels in the city of Mumbai once the in hand projects are completed. However, during the previous conference call, management indicated a planned investment of Rs 20-25 bn towards land acquisition. As a part of that initiative, the company acquired land worth Rs 1,750 m during the quarter. However, considering that land prices in Mumbai have surpassed early highs and are not likely to correct in the near term management has planned a wait and watch approach towards land acquisition. Funding the land acquisition should not be an issue as the company is sitting on a huge cash pile on its books with negligible net debt. However, Goa SEZ imbroglio and delayed payment from Alok Realtors continues to haunt the company. Nevertheless, we believe these concerns are already into the price. Thus we believe one can consider entering into the stock at Rs 70 odd levels.

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