Brigade Enterprises-2QFY11 Results: Pick-up in volumes - JPMorgan

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Brigade Enterprises Neutral

BRIG.BO, BRGD IN

Mixed 2QFY11 Results: Pick-up in residential volumes

is encouraging, however office leasing remains slow

• 2QFY11 results – Brigade reported 2QFY11 net income of Rs200M (up
44% Q/Q, up 346% Y/Y) and revenues of Rs1.2B (up 33% Q/Q, up 46%
Y/Y). Adjusted for exceptional, 2Q net income stood at Rs178MM –
14% ahead of our estimate. Brigade Gateway and Metropolis accounted
for >80% of the overall revenues in 2Q. Net debt (at Rs7.3B) increased
by ~Rs500MM during the quarter, primarily on account of build-out of
its commercial projects.


• Pick-up in residential volumes is encouraging – Brigade sold
0.2msf/172 units (up 40% Q/Q, up 28% Y/Y) of residential space in
Sep-Q, taking 1HFY11 bookings to 0.35msf/297 units (up 29% Y/Y).
While sequential pick-up in residential volumes is encouraging; we note
that volume revival in the case of Brigade has been relatively slow
compared to its peers (Sobha/PVKP). This could primarily be
attributable to its limited unsold inventory (<1msf vs. ~3msf for its
peers) and slow progress on new launches. Going ahead, management is
looking to launch 9msf including two big township projects in
Devanhalli (villas) and Kanakpura (value housing) over FY11/12.

• Progress on commercial leasing remains slow – Brigade has 3msf of
commercial projects (North Star, Orion Mall, SummitI/II) across two
township projects which are at advanced stage of completion and are
expected to be completed by this year end. However, only 30% of the
area (0.8msf in Orion Mall & Summit I/II) has been leased across these
projects. Management indicated that additional ~0.5msf of lease
agreements (in World Trade Center/Summit I/II) are at advanced stages
and should be concluded over 3Q/4Q which should take the overall
leasing to 50% of the overall commercial portfolio.

• Asset sales should provide comfort on cash flows– Brigade has
achieved asset sales of ~Rs1.4B (Columbia Hospital in Gateway/strata
sales in Metropolis project) over the last quarter. Inflows from these (in
3Q) would largely help the company cover its incremental capex on
commercial assets and keep the debt levels (Net D/E –0.7x) under check.