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Brigade Enterprises
Strong results; Reiterate Buy
2Q results better than expected; Reiterate Buy
Brigade reported strong 2Q earnings at Rs178mn (adjusted for write back of
Rs22mn), 10% ahead of our estimate due to better than expected sales. We
expect the 2HFY11 to be even stronger as it recognizes Rs1.5bn from the sale of
commercial assets. We reiterate our Buy rating with PO of Rs188, offering a
potential upside of 36% as we expect aggressive launches of new residential
projects in next 12 months with pick up in leasing of commercial projects.
Residential realization and volume improves
Brigade pre sold 0.2mn sq ft in 2Q, up from 0.15mn sq ft in 1Q with improved
realization as it increased prices by 5-15% across projects. It has aggressive
plans for launching 9mn sq ft with expected realization of over Rs3500/sq ft (20%
higher than our estimate) in next 12months. We expect the new launches to be a
key trigger for stock as it will improve earnings and cash flow visibility beyond its
current projects most of which are nearing completion.
Increased traction in commercial leasing
Brigade’s commercial projects in Bangalore have finally seen improved traction on
leasing. It is under final stages to lease 0.6mn sq ft (30% of the leasable area) in
its two office properties while pre leasing in retail mall has reached 70% (50% in
last qtr) with average rentals of Rs80/sq ft/month though the mall is now expected
to commence operation only from 1QFY12 (already factored in our estimates).
The currently pre leased space itself will generate Rs1bn of revenue from FY12.
Leverage (at 0.7x) rising but not a concern
Debt at Rs7.7bn, accounts for construction of commercial assets but should trend
down from 3Q, as monetization of its commercial assets will pick pace once
leased (Rs1.5bn realized recently from sale of leased hospital and retail property).
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