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PAT in line with estimate; Columbia Asia Hospital sale boosts profits
Brigade Enterprises (Brigade) reported Q3FY11 standalone revenue of INR 1.44
bn, below our estimate of INR 2.0 bn. The variance was primarily on account of
sale of Columbia Asia Hospital worth INR 1.27 bn being recorded net of costs at
~INR 820 mn (cost of INR 450 mn) with balance revenues being booked largely
from the Metropolis project at Whitefield, Bengaluru. Reported net profit of
INR 581 mn was in line with our expectation of INR 555 mn.
Residential sales improve; response to new launches key monitorable
The company made new bookings of ~0.3 msf during the quarter, an
improvement from ~0.2 msf in Q2FY11 and the soft launch for Brigade Exotica
project at Old Madras Road, Bengaluru, and Brigade Orchards at Devanahalli,
Bengaluru, has commenced. Brigade has maintained its launch guidance of ~9
msf (over 70% residential) of new projects over the next 12 months.
Additionally, the company has entered into a joint development agreement (JDA)
for a residential project of 1.8 msf (over 1,000 units) spread over 16.5 acres at
Whitefield (Bengaluru). The company will have a 71% revenue share with
estimated launch price of INR 3,000/sf plus. We expect the project to be
launched in H2FY12 and be completed by FY16.
Gateway rental assets to become operational in H1CY11
Brigade expects its Gateway rental assets to become operational in H1CY11 with
the 230 keys Sheraton Gateway Hotel expected to become operational by March
2011 and Orion Mall (0.8 msf) starting operations by June 2011. Also,
negotiations for strata sales/leasing are in progress for the completed ~1 msf
World Trade Centre, Gateway, commercial project.
Outlook and valuations: Attractive; maintain ‘BUY’
We value Brigade on DCF basis for forthcoming residential/commercial launches
of ~21 msf (its share at ~14.3 msf) at INR 8.4 bn, capital value of
rental/hospitality assets at INR 17.4 bn, with residual land valued at INR 2.5 bn.
We have revised our NAV to INR 196/share (INR 187 earlier) factoring in new
Bengaluru JDA and rolling forward our NAV to FY12E basis. We maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Company Description
Brigade is an established real estate developer in South India with focus on development
of residential, commercial, retail, and hospitality projects. Since inception, its business is
concentrated within Bengaluru and nearby areas such as Mysore. The company has an
inhouse, fully integrated property development team comprising engineers and architects
who oversee the development of properties from inception to completion.
The developer’s ongoing projects are divided into residential projects of ~6 msf which are
complete/nearing completion and commercial/retail/hospitality projects of ~3 msf at its
flagship Gateway and Metropolis projects located in Bengaluru at Malleswaram and
Whitefield, respectively. Apart from the ongoing projects, the company has delivered ~5.7
msf of residential and commercial projects till FY08 in South India and has an additional
planned development of ~29 msf in South India, in which Brigade’s economic interest is
~21 msf.
Investment Theme
Quality South India developer with focus on Bengaluru
Brigade is a South India based developer with operations concentrated primarily in
Bengaluru along with other cities like Hyderabad, Mysore, Chennai, and Kochi. The
developer currently has a land bank, of ~31.3 msf of saleable area (excluding ongoing
projects, of which Brigade’s economic interest is ~22 msf including ~17 msf residential
and ~5 msf of commercial/retail projects with two-thirds of the land bank being
concentrated in Bengaluru.
Completed rental assets and new launches to provide growth
~3 msf of the company’s Gateway/Metropolis projects’ rental/hospitality assets are
nearing completion. Improved leasing visibility coupled with the ~1.1 msf Gateway Office
bagging ‘World Trade Centre’ status are key positives. After focusing on ~9 msf of
projects across Bengaluru/Mysore in FY09-10, Brigade plans to launch ~9 msf residential
projects across South India over the next 12 months, primarily in Bengaluru. The
success of the launches will be key with revival in buyer sentiment along with increased
hiring/salary hikes.
Key Risks
Slower-than-expected recovery in commercial leasing
A major part of Brigade’s valuation emanates from Gateway and Metropolis
commercial/retail assets. As the commercial/retail space in Bengaluru is still encountering
oversupply problem, leasing activity may be slower than expected.
Visibility of cash flow dependent on large residential launches in FY11-12
With Brigade’s flagship Gateway/Metropolis projects in Bengaluru nearing completion, the
company is planning to launch ~9 msf of new projects in FY11-12E. As these are its first
major project launches after a gap of over three years, robust sales off take in these
projects is essential for visibility of cash flows.
Land acquisition risk
The company’s current ~22 msf land bank is significantly lower than its peers in South
India. Inability to replenish the land bank can negatively impact the company in a rising
land prices scenario.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
PAT in line with estimate; Columbia Asia Hospital sale boosts profits
Brigade Enterprises (Brigade) reported Q3FY11 standalone revenue of INR 1.44
bn, below our estimate of INR 2.0 bn. The variance was primarily on account of
sale of Columbia Asia Hospital worth INR 1.27 bn being recorded net of costs at
~INR 820 mn (cost of INR 450 mn) with balance revenues being booked largely
from the Metropolis project at Whitefield, Bengaluru. Reported net profit of
INR 581 mn was in line with our expectation of INR 555 mn.
Residential sales improve; response to new launches key monitorable
The company made new bookings of ~0.3 msf during the quarter, an
improvement from ~0.2 msf in Q2FY11 and the soft launch for Brigade Exotica
project at Old Madras Road, Bengaluru, and Brigade Orchards at Devanahalli,
Bengaluru, has commenced. Brigade has maintained its launch guidance of ~9
msf (over 70% residential) of new projects over the next 12 months.
Additionally, the company has entered into a joint development agreement (JDA)
for a residential project of 1.8 msf (over 1,000 units) spread over 16.5 acres at
Whitefield (Bengaluru). The company will have a 71% revenue share with
estimated launch price of INR 3,000/sf plus. We expect the project to be
launched in H2FY12 and be completed by FY16.
Gateway rental assets to become operational in H1CY11
Brigade expects its Gateway rental assets to become operational in H1CY11 with
the 230 keys Sheraton Gateway Hotel expected to become operational by March
2011 and Orion Mall (0.8 msf) starting operations by June 2011. Also,
negotiations for strata sales/leasing are in progress for the completed ~1 msf
World Trade Centre, Gateway, commercial project.
Outlook and valuations: Attractive; maintain ‘BUY’
We value Brigade on DCF basis for forthcoming residential/commercial launches
of ~21 msf (its share at ~14.3 msf) at INR 8.4 bn, capital value of
rental/hospitality assets at INR 17.4 bn, with residual land valued at INR 2.5 bn.
We have revised our NAV to INR 196/share (INR 187 earlier) factoring in new
Bengaluru JDA and rolling forward our NAV to FY12E basis. We maintain ‘BUY’
recommendation on the stock and rate it ‘Sector Outperformer’ on relative
return basis.
Company Description
Brigade is an established real estate developer in South India with focus on development
of residential, commercial, retail, and hospitality projects. Since inception, its business is
concentrated within Bengaluru and nearby areas such as Mysore. The company has an
inhouse, fully integrated property development team comprising engineers and architects
who oversee the development of properties from inception to completion.
The developer’s ongoing projects are divided into residential projects of ~6 msf which are
complete/nearing completion and commercial/retail/hospitality projects of ~3 msf at its
flagship Gateway and Metropolis projects located in Bengaluru at Malleswaram and
Whitefield, respectively. Apart from the ongoing projects, the company has delivered ~5.7
msf of residential and commercial projects till FY08 in South India and has an additional
planned development of ~29 msf in South India, in which Brigade’s economic interest is
~21 msf.
Investment Theme
Quality South India developer with focus on Bengaluru
Brigade is a South India based developer with operations concentrated primarily in
Bengaluru along with other cities like Hyderabad, Mysore, Chennai, and Kochi. The
developer currently has a land bank, of ~31.3 msf of saleable area (excluding ongoing
projects, of which Brigade’s economic interest is ~22 msf including ~17 msf residential
and ~5 msf of commercial/retail projects with two-thirds of the land bank being
concentrated in Bengaluru.
Completed rental assets and new launches to provide growth
~3 msf of the company’s Gateway/Metropolis projects’ rental/hospitality assets are
nearing completion. Improved leasing visibility coupled with the ~1.1 msf Gateway Office
bagging ‘World Trade Centre’ status are key positives. After focusing on ~9 msf of
projects across Bengaluru/Mysore in FY09-10, Brigade plans to launch ~9 msf residential
projects across South India over the next 12 months, primarily in Bengaluru. The
success of the launches will be key with revival in buyer sentiment along with increased
hiring/salary hikes.
Key Risks
Slower-than-expected recovery in commercial leasing
A major part of Brigade’s valuation emanates from Gateway and Metropolis
commercial/retail assets. As the commercial/retail space in Bengaluru is still encountering
oversupply problem, leasing activity may be slower than expected.
Visibility of cash flow dependent on large residential launches in FY11-12
With Brigade’s flagship Gateway/Metropolis projects in Bengaluru nearing completion, the
company is planning to launch ~9 msf of new projects in FY11-12E. As these are its first
major project launches after a gap of over three years, robust sales off take in these
projects is essential for visibility of cash flows.
Land acquisition risk
The company’s current ~22 msf land bank is significantly lower than its peers in South
India. Inability to replenish the land bank can negatively impact the company in a rising
land prices scenario.
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