Company background
Prestige is one of the leading real estate development
companies in south India with over 24 years of experience.
It has completed 150 real estate projects of approximately
34.23 million square feet (sq ft). It has developed a
diversified portfolio of real estate development projects
focusing on projects in the residential, commercial,
hospitality and retail segments of the real estate industry.
It currently owns or holds development rights for 57.36
million sq ft of developable area, which includes 28.43 million
sq ft of saleable area and 11.04 million sq ft of leasable
area.
In its retail business, Prestige has entered into a joint
venture with CRIDF, an associate of CapitaMalls Asia.
CapitaMalls Asia is one of the largest listed “pure-play”
shopping mall owners, developers and managers in Asia by
total property value of assets and by geographic reach, in
terms of number of malls and cities. The joint venture is
aimed at developing six retail projects (principally mall
development) with a total developable area of 5.61 million
sq ft (of which the leasable area is 1.83 million sq ft) in
south India
While its real estate development business continues to be
its primary focus, it also offers a variety of services through
its real estate services business. This includes the provision
of property management services for its commercial and
residential developments, sub-leasing and fit-out services,
project and construction management services, interior
solutions services, mall management services (which includes
the retail real estate projects that it completes pursuant to
its joint ventures with CRIDF) and the operation of its
hospitality projects.
Key strengths
A strong execution track record with a strong brand name
Prestige has a proven execution track record across a
diversified portfolio of real estate projects. As of August
2010, it has completed construction of 34.23 million sq ft
of developable area across the residential, commercial,
hospitality and retail segments of the real estate market
in Bangalore. With this, Prestige has established a reputable
brand name in the real estate market in south India due to
its distinctive design, planning, high quality execution and
prompt delivery of projects, in conjunction with a customerfocused
sales and marketing capability. Its attention to
quality and commitment to timely delivery of projects has
resulted in Prestige receiving various awards, which have
served to enhance its brand and reputation.
Prestige has developed some of the most identifiable
landmarks in Bangalore, including Prestige Shantiniketan,
one of the largest integrated township development in
Bangalore; UB City, one of the largest mixed-use
development in Bangalore's Central Business District; The
Forum Mall in Bangalore, which was named as Most Admired
Shopping Centre Of The Year: Retailer’s Choice, at the 2008
India Retail Forum Awards; Cessna Business Park, a
dedicated IT / ITeS SEZ development; and Angsana Spa &
Resort, an exclusive 79-room resort in Bangalore.
Pursue its integration strategy
Prestige intends to integrate its business and operations
by further developing its in-house construction
management, property management and interior design
capabilities. It recently acquired 75% of the share capital
of Team United, a construction company in south India,
with the aim of developing an in-house capability to
construct their own projects. Team United has already been
integrated into the company, and provides construction
management services for its developments.
Prestige Property Management and Services, the in-house
property management division was established in 1996,
and presently has approximately 1,400 employees which
deal with all aspects of property management for the
company’s projects, including safety and security, cleaning,
maintenance, landscaping and general facilities
management. A dedicated in-house property management
team differentiates Prestige from its competitors, who
traditionally outsource the property management function.
Prestige’s in-house interior design division provides both
customised and standardised interior design and
construction services for its residential and commercial
projects, and liaises with its clients, architects, consultants
and suppliers to ensure that the interior design and fit-out
of premises is in accordance with the clients' specifications,
and remains within budget and timelines for those projects.
Through this integration, Prestige hopes to set more
efficient budgets and better control the timing of
completion and quality standards of its various projects.
Strong client base
Prestige has been able to successfully establish and nurture
relationships with reputable commercial clients, for whom
it has undertaken numerous developments. These include
Cisco Systems (seven developments between 2000 and 2009,
with a total leasable area of 1.85 million sq ft) and Reliance
Industries (two developments between 2003 and 2007 with
a total leasable area of 0.19 million sq ft). In addition, in
the IT/ITeS market segment, it has completed projects for
a leading technology company (five developments between
2001 and 2005 with a total leasable area of 0.72 million sq
ft), and a leading enterprise software company (five
developments between 2002 and 2007 with a total leasable
area of 0.87 million sq ft). Thus strong relationships with
its clients provides with opportunities to undertake
additional developments for those clients. In addition, a
significant client base minimises its dependence on any
one client or group of clients.
Key risks
High debt-equity ratio
Prestige has a debt-equity ratio of 2.6x which is very high
and thus raising further debts would have been difficult to
execute its ongoing and planned projects. However, Prestige
plans to repay some of its debt from the IPO proceeds which
will bring down the debt-equity to 0.9x. Thus post IPO, it
will be able to leverage its balance sheet further in order to
acquire more land and execute its projects.
Lower EBITDA margins
Prestige makes an operating margin of approximately 21%
which is low compared to its peers. However, now the
company would be adopting the strategy of retaining 30%
of the stock till the project is completed which would help
them to price it according to the final cost incurred and the
price appreciation which might have happened in the
market. This strategy would help in improving the operating
margins.
Outlook
Prestige has displayed strong execution skills by completing
approximately 35 million sq ft of projects till date, which is
uncommon among the listed players. Further it has a strong
client base helped by a strong brand image. However, it
trades at a Price/Book Value (P/BV) of 2.9x-3.0x at its lower
and upper end of the price band respectively. Though the
company has good execution skills, track record and
sizeable potential for growth, the valuation looks slightly
aggressive compared to its peers.
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