BRIGADE -Visible improvement across segments: Edelweiss

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BRIGADE ENTERPRISES
Visible improvement across segments



􀂃 Revenue ahead of estimate
Brigade Enterprises (Brigade) reported Q2FY11 standalone revenue of INR 1,226
mn, ahead of our estimate of INR 960 mn. This was primarily due to higher
share of revenue from Gateway on which average realizations were higher.
EBITDA margin improved during the quarter (23% vs. 19% in Q1FY11) broadly
in line with our expectation of ~25%. Reported net profit of INR 200 mn was in
line with our expectation of INR 192 mn due to reversal of prior period
items/excess tax provisions.


􀂃 Residential sales improve; new launches on cards
The company made new bookings of ~170 units (~0.2 msf) during the quarter,
a visible improvement from ~125 units in Q1FY11 and Q4FY10 and currently it
has unsold inventory of ~500 units across ongoing projects. Visibility on new
launches is improving with Brigade planning to launch ~9 msf (over 70%
residential) of new projects over the next 12 months including Phase I of
Devanahalli and Kanakpura (Bengaluru) townships and Phase I of Brigade Value
Homes. Additionally, the company has entered into a joint development
agreement (JDA) for a residential project of ~2 msf spread over 21 acres at
Arcot Road (Chennai) in which Brigade will have ~50% revenue share with an
expected launch price of ~INR 5,000/sf.

􀂃 Uptick in leasing activity at Gateway/Metropolis projects
Brigade has entered into agreements to lease an additional ~0.3 msf at
Metropolis, Whitefield in Bengaluru during the quarter at rentals of ~INR 30/sf
and is also in final stages of negotiation at WTC Gateway for lease of ~0.3 msf.
Further, Orion Mall which is expected to be operational in Q1CY11 is ~70%
leased at average rentals of ~INR 80/sf (50% leased in Q1FY11). Construction
activity on ~3 msf of rental assets is at an advanced stage and the Sheraton,
Gateway Hotel (~230 keys) is expected to be operational in Q4FY11.

􀂃 Outlook and valuations: Poised for growth; maintain ‘BUY’
We value Brigade on DCF basis for forthcoming residential/commercial launches
of ~19 msf (its share at ~13 msf) at INR 9.0 bn, capital value of
rental/hospitality assets at INR 17.5 bn, with residual land valued at INR 2.6 bn.
We have revised our NAV to INR 194/share (INR 187 earlier) factoring in new
Chennai JDA of ~2 msf. We maintain ‘BUY’ recommendation on the stock and
rate it ‘Sector Outperformer’ on relative return basis.