CRISIL maintains valuation grade of 5/5 to Parsvnath

Parsvnath Developers Ltd’s (Parsvnath’s) Q1FY13 results were below CRISIL Research’s expectations. Revenues declined 25% y-o-y to Rs 1,634 mn due to slow execution in some of the projects. EBITDA margin was 66% against 26% in Q1FY12 due to change in disclosure levels as per Schedule VI of the Companies Act. Project-specific interest costs, which were earlier part of cost of goods sold, are now reported under interest costs below EBITDA. On a like-to-like basis, EBITDA margin would have been 59% in Q1FY12. PAT declined 22% y-o-y to Rs 202 mn. Bookings were flat q-o-q at 0.8 mn sq ft in line with our expectations. However, lower-than-expected execution led to decline in revenues. This coupled with high interest cost impacted PAT. Net debt remained at Rs 14.6 bn. Though the company plans to reduce debt through sale of assets, it is a key monitorable. We lower our earnings estimates factoring in delays in some of the projects. We maintain our fundamental grade of 2/5.

Bookings remained flat; execution is key
Bookings were flat at 0.75 mn sq ft in Q1FY13 vs. 0.8 mn sq ft in Q4FY12 but declined 39% y-o-y. Owing to slow execution in a few projects and decline in bookings, revenues declined 25% y-o-y. During Q1FY13, the company received Rs 1,900 mn as customer advances, of which Rs 800 mn was spent on construction and Rs 800 mn as interest payment. Bookings in some of the key projects such as Exotica Ghaziabad and Exotica Gurgaon were strong. Along with these projects, ramp-up in execution at La-Tropicana Civil Lines, New Delhi is the key for profitability.

Debt remains high; remain cautious on deleveraging plans
Net debt excluding fully convertible debentures (FCDs) of Rs 4.3 bn remains high at Rs 14.6 bn compared to Rs 14.9 bn in Q4FY12. The company is looking to deleverage its balance sheet via sale of assets and equity dilution at the SPV level; it remains a key monitorable.

KG Marg land parcel received approvals, sell-off/ development plan is a monitorable
Parsvnath’s 1.2-acre commercial land at Kasturba Gandhi Marg, near Connaught Place, New Delhi has received all the necessary approvals. The company had plans to sell the land parcel at 2.5-3x its purchase price of Rs 2.1 bn. Alternatively it is exploring options to develop and sell the project. If the company opts for the latter, debt could increase which would impact profitability.

Earnings estimates lowered; fair value maintained at Rs 63 per share
Factoring in delays in some projects, we lower our revenues estimates by 5.5% for FY13 and 5.4% for FY14. We expect debt to increase to ramp-up execution of the projects. Accordingly, interest is expected to increase; hence, we lower earnings estimates by 18% and 15% for FY13 and FY14, respectively. We maintain our fair value of Rs 63 per share based on the net asset value method. At the current market price of Rs 39, the valuation grade is 5/5.

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