DS Kulkarni Ltd.
CMP Rs431.90
BUY
Pune continues to maintain itself as one of the best IT/ITES business destination. D.S. Kulkarni with major presence in the Pune market is harnessing its strong market understanding, which should result in revenue and profit CAGR of 57% and 100% respectively over FY06-09. Land bank of Rs170 per share makes it’s further attractive for investment. We have a BUY rating on the stock.
Pune exemplifies our investment theme of population migration leading to rising real estate prices. With huge upcoming IT/ITES demand, better road connectivity to Mumbai, many professional educational institutions and weekend destination would continue to keep Pune real estate prices on the rise. We rate Pune as one of the most attractive Tier II cities for real estate development. DSK, who is among the top 3 players in this market, is expected to be one of the biggest beneficiaries of the real estate boom.
DSKDL with strong understanding of the Pune market having recognized the changing market dynamics has altered its business plan to accommodate high value apartment and villas, which would form more than 40% of the revenues. This apart it is also developing an IT park (8% of the total revenues), which should maintain housing demand in DSK Vishwa. We expect this to improve gross margins significantly over the next three years.
The company has its hands full with 13 under development projects, which would contribute towards 100% profit CAGR over the next three years. We have not factored in the revenues from its US subsidiary which could contribute 10-15% from FY08 onwards.
The company has developed more than 3mn sq ft over the past 10 years and has plans to develop another 9mn sq ft over the next 4 years. While the company has the necessary processes in place to manage growth, execution remains the biggest concern.