Edelweiss recommeds: BUY Brigade enterprises

Quality South India developer with focus on Bengaluru
Brigade Enterprises (Brigade) is a South India based developer with presence
across cities like Bengaluru, Mysore and Chennai with a land bank of ~27 msf
(~20 msf economic interest) , ex-ongoing projects. The developer is set to deliver
~15 msf projects by March 2011 (~5.67 msf till FY08) with the company’s flagship
projects at Bengaluru—Gateway and Metropolis—of ~8msf nearing completion.
􀂄 ~3msf of Gateway/Metropolis rental assets valued at INR 142/share
~3 msf of the company’s Gateway/Metropolis projects’ rental/hospitality assets are
nearing completion. Improved leasing visibility coupled with the ~1.1 msf Gateway
Office bagging ‘World Trade Centre’ status are key positives. We value Gateway
rental/hospitality assets at ~INR 13.6 bn and Metropolis rental assets at INR 2.4
bn on cap rates of 11% with 15% rental escalation every three years.
􀂄 Upcoming launches to drive growth, valued at INR 73/share
After focusing on ~9 msf of projects across Bengaluru/Mysore in FY09-10, Brigade
plans to launch ~8 msf residential projects across South India over the next 12
months, primarily in Bengaluru. The success of the launches will be key with revival
in buyer sentiment along with increased hiring/salary hikes. We value Brigade’s
interest at ~INR 8.2 bn in launches of ~17msf in FY11-17E (its share ~12 msf).
􀂄 Asset monetisation/space sale to allay funding concerns
Asset monetisation of ~INR 2.3 bn in FY11E and ~INR 1.5 bn in FY12E through
Columbia Asia Hospital sales of ~INR 1.23 bn, North Star Office strata sales of
~INR 2.4 bn, and ~INR 150 mn from Metropolis Arcade Mall will keep debt levels
in check. We expect Brigade’s net D/E to dip from 0.7x in FY10 to 0.5x in FY12E.
􀂄 Outlook and valuations: Poised for growth; initiate coverage with ‘BUY’
We have valued Brigade on DCF basis for forthcoming residential/commercial
launches of ~17 msf (its share at ~12 msf) at INR 8.2 bn, capital value of
rental/hospitality assets at INR 17.5 bn, with residual land valued at INR 2.6 bn.
Adjusting for FY11 net debt, the