Prestige Estates Projects – IPO Review
Prestige Estates Projects (PEPL) is making an IPO for Rs1,200cr through fresh issue of 6.7-
6.9cr shares (20.3 - 20.9% of its post-issue paid-up capital) in the price band of Rs172-
180/share. PEPL intends to utilise the IPO proceeds to fund construction of its ongoing and
planned residential and commercial projects, invest in its subsidiaries, acquire land and
repayment of loans.
Diversified portfolio with proven track record in execution
PEPL has an execution track record of having completed 11.5msf of residential, 7.4msf of
commercial and 1msf of retail and hospitality projects over the last five years. PEPL enjoys
a strong brand in Bengaluru, which accounts for 73% of its current land bank. However,
the company is now in the process of geographically diversifying and expanding its real
estate development business in the other southern cities of Chennai, Cochin, Hyderabad,
Mysore and Mangalore. We expect PEPL to be a key beneficiary of the recovery phase
being witnessed in the IT/ITES space on account of increased job security and improving
salaries leading to higher demand for housing.
Stretched Balance Sheet: The company has total debt of ~Rs20bn, implying gross debt of
2.6x as on June10. The company would utilise some of the IPO proceeds to repay debt.
Hence, post the IPO, the company’s debt/equity ratio would be 1x. The higher debt is
attributable to exposure towards the non-residential segment where the cash inflow is
back-ended. Further, it largely focuses on joint development model, which gives limited
scope of improvement in margins.
Premium to peers and our 1-year forward NAV: We have assumed an eight year
development period for the company’s existing land bank. Also, we have assumed
average realisation of Rs6,000 per sq ft on PEPL’s saleable interest based on its
geographical presence, which gives us a fair NAV of Rs164/share. At lower band of the
issue price, the company will trade at 2.5x P/BV on FY2012E and 4% premium to our 1-yr
forward NAV, which is at premium to its peer group. Hence we recommend Avoid to the
issue.
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