Business Profile
Prestige Estates Projects Limited (PEPL) is one of the leading real estate developing
players in South India. The company started its operations in the year 1986 as a
partnership firm. Currently it owns or hold development rights for 57.36 million sq. ft. of
Developable Area comprising of 28.43 million sq. ft. of Saleable Area and 11.04 million sq.
ft. of Leasable Area.
There are 32 Ongoing Projects of the company at present that includes 11 residential
projects with a Developable Area of 10.92 million sq. ft. (Saleable Area 9.27 million sq.
ft.), 14 commercial projects with a Developable Area of 18.32 million sq. ft. (Saleable
Area 5.91 million sq. ft. and the leasable area 6.14 million sq. ft.), 4 hospitality projects
with a Developable Area of 1.26 million sq. ft. (equivalent to approx. 655 keys, Leasable
Area 0.91 million sq. ft.) and 3 retail projects with a Developable Area of 3.39 million sq.
ft. (Leasable Area 1.20 million sq. ft.).As of August 31, 2010, the company's land bank
aggregates to approximately 483.16 acres. PEPL caters to IT/ITeS market segment and its
clientele includes Cisco Systems, Reliance Industries.
Strengths
Strong execution track record and brand name: The company has a proven
execution track record. As of August 31, 2010, it has completed construction of 150 real
estate projects with approx. 34.23 million sq. ft. of Developable Area in Bangalore. Some
of the identifiable landmarks developed by the company in Bangalore, includes Prestige
Shantiniketan, one of the largest integrated township in the city, UB City, one of the
largest mixed-use development in Bangalore's Central Business District; The Forum Mall,
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.
Diversified Portfolio: PEPL has developed a diversified portfolio of real estate
development projects focusing on projects in the residential (apartments, villas, plotted
developments and integrated townships), commercial corporate office blocks, built-tosuit
facilities, technology parks and campuses and SEZs), hospitality (hotels, resorts and
serviced accommodation) and retail (shopping malls) segments of the real estate
industry. Its ongoing, under development, forthcoming projects are also targets diverse
categories that gives stable cash flows.
Partnership with CRIDF: The company 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. Its JV with CRIDF is
aimed at developing retail projects in south India in cities such as Bangalore, Mysore,
Mangalore, Hyderabad and Cochin. The total Developable Area and Leasable Area under
projects will be approximately 5.61 sq. ft. and 1.83 million sq. ft. respectively.
Strategy
Continue to increase land bank across South India: To increase its market share in
different segments it intends to continue acquiring land at strategic locations in
Bangalore and across south Indian cities of Chennai, Cochin, Hyderabad, Mangalore and
Mysore. The company intends to focus on geographic areas having capital appreciation
opportunities by developing projects for sale or lease.
Diversify revenue streams: The company intends to diversify revenues by developing a
wide price range of apartments, corporate office space, integrated townships and mixeduse
developments, hotels, malls, multiplexes and shopping complexes. It also intends to
expand and grow the service offerings of its real estate services business by offering
property management services, sub-leasing and fit-out services, project and
construction management services, interior design services and mall management and
facilities management services.
To integrate business operations: The company intends to integrate its business and
operations by further developing in-house construction management, property
management and interior design capabilities. This will help company in setting efficient
budgets and better control over the completion and quality standards of the projects.
Risks
Concentrated presence: As of June 30, 2010, 82.06%, 83.13% and 51.21%, respectively
of its ongoing, under development and forthcoming projects are located in Bangalore.
Major dependence on a single city could adversely impact its revenues in case of
unfavorable market condition of the city.
Rate of Progress of Construction and Development: In real estate business
companies follow the percentage of completion method for revenue recognition. Sales
depend upon the volume of bookings obtained for the developments as well as the rate of
progress of construction of the projects. Delay in the completion of the projects poses
risk of cost overrun due to increasing cost of construction.
Fluctuating market price: The market prices of the property are mainly driven by
market forces of demand and supply that are affected by various factors that includes
prevailing local economic, income and demographic conditions, interest rates available
to purchasers requiring financing, the availability of comparable properties completed or
under development, changes in governmental policies relating to zoning and land use,
changes in applicable regulatory schemes, and competition from other real estate
development firms. The success of projects depends on the general economic growth and
demographic conditions in India.
Industry overview
The real estate business involves the purchase, development and sale of land, including
both residential and nonresidential buildings. Real estate sector activities also
encompass activities in the housing and construction sectors. The Indian real estate
sector has traditionally been dominated by a number of small regional or local players
with low levels of expertise. There has been a rapid change as the sector is experiencing
higher growth rates and significantly improved quality expectations as India becomes
more integrated with the global economy along with high GDP growth of India, increased
urbanization, improving demographics, as well as growth across various sectors such as IT
/ITeS, retail, consumer durables, automobiles, telecommunications, banking, insurance,
tourism, hospitality and logistics. Known as the "Silicon Valley" of India, Bangalore is the
sixth largest city in India, with numerous public sector industries, software companies,
aerospace companies, textile industries and IT / ITeS and biotechnology companies based
in the city.
Valuation
On the upper price band of `183, the stock is priced at P/E of 33.07x on pre issue FY10 EPS
of `5.53. At post issue FY10 EPS of `4.43, the P/E multiple will be 41.34x. Accordingly, the
stock is priced at pre-issue P/B of 6.29x on its book value of `29.10. Post issue, the stock is
priced at P/B of 3.06x on its post issue book value of `59.86.
Outlook
Improved sentiments in the real estate industry provide opportunity for growth to the
company. The premium ongoing projects of the company's are expected to enhance its
profitability, going forward. However, the revenues from its projects in other cities
depend on its market acceptance and are yet to be proven. Major dependence on the IT
city poses risk of any slowdown in the IT industry. On the valuation part, the stock seems
to be stretched when compared to its established peers which are available on much
lower multiples.
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