Parsvnath Developers: Buy

nvestors with a 2-3 year perspective can consider an exposure in the stock of Parsvnath Developers. At the current market price, the stock is attractively valued at 16 times its trailing 12-month earnings. Strong execution skills, geographical and business diversification, and high earnings visibility from projects under construction are supporting factors to our recommendation.

Parsvnath’s land bank consists of registered land from private parties or land from the Government for which allotment letters have been received. The land portfolio’s clear titles and approved use mitigate execution risks. Of the total land bank, 76 million sq ft or 40 per cent of land held is already under development. A good portion of this has already been sold, essentially securing earnings, which would be booked over the next couple of years. Any slowdown in property demand at a later date is therefore unlikely to dent medium-term earnings.

The company’s current projects have a well-diversified mix of residential, commercial, township, hotels and build operate transfer (BOT) projects for Delhi Metro Rail Corporation. The geographical mix of land is also diversified across 48 cities with no location accounting for more than 10 per cent of the total land bank.

Two-thirds of the company’s land bank is, however, located in tier-III cities, generally considered risky. However, residential and integrated township projects form a chunk of the company’s projects. Of these, as mentioned earlier, a good proportion of residential projects have been sold.

Further, integrated townships provide flexibility to change plans to suit market requirements as they are only built in phases. We believe these features may provide some cushion against risk of high exposure in tier-III cities.

Another noticeable feature of Parsvnath’s project basket is the BOT project from Delhi Metro Rail Corporation wherein the company can develop and earn revenue from the land leased by Metro Rail. Although relatively less significant in terms of developable area, we believe that the company could leverage this experience to bid for similar projects in other cities. Given the huge land holding held by the Railways, there exists high business potential for developers if such land is unlocked by way of long-term lease.

We view the company’s move to apply for telecom licence with caution as the current business of real estate alone demands significant resource and skills. However, that the company plans to foray into this business (if approved) through a separate entity provides some comfort.