Broker’s Call: Prestige Estates Projects (Buy)
Target: 630 rupees
CMP: INR 487.80
Prestige Estates (PEPL) recorded highest ever annual advance sales of Rs 12,900 crore (+24 per cent yoy) on the back of 16 million square feet (msf) launches and strong pre sales in Mumbai Metropolitan Area (MMR) at Rs 2,700 crore rupee. On the back of this, sales outside Bengaluru increased to 41 percent from 20 percent in FY22.
For FY24, it expects to achieve 25 per cent annual pre-sales growth over FY23. It expects to achieve this on the back of a strong launch pipeline of 76 cubic meters with higher expected contribution from Mumbai MMR and Hyderabad along with Bengaluru ( whose sales were weak due to a decrease in new launches).
In two significant transactions, PEPL acquired the remaining stake in BKC and Mahalaxmi venture from DB realty for ₹900 crores and ₹200 crores respectively. The total project cost in these two projects is Rs. 7,500 crore, of which PEPL incurred Rs. 3,000 crore (including Rs. 1,100 crore share purchase).
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For the BKC project, PEPL expects a rent increase from $325 per square foot per month to $350 per square foot per month and a cap rate compression to 8 percent from 9.5 percent (at appraisal stage).
These two factors are expected to provide a potential positive valuation of Rs 3,500 crore. On account of this transaction, Net Debt increased to Rs.5,570 crores, from Rs.4,170 crores in December 2022. Hence, Net D/E was 0.54x (0.42x in March 2022). Total debt stands at Rs.7,500 crore (as against Rs.6,300 crore on 22nd December).
To maintain the growth momentum, PEPL is targeting residential business development of Rs 20,000 crore p.a. and may launch its first project in NCR subject to timely approvals. We keep buying, with an unchanged TP-SOTP of Rs 630/share.