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Prestige Estates (PREG.BO; Neutral): Balanced risk-reward
Investment view
We initiate coverage on Prestige Estates with a Neutral rating and 12-m
target price of Rs169. Prestige is a South India based developer with an
established presence across various business verticals including
residential, retail, commercial and hospitality projects. In our view, while
the key revenue drivers appear robust, we believe the significant scaleup
in execution needed could be a challenge leading to delays and
increased costs.
Residential market: Prestige has a large number of projects in the
luxury segment. We expect strong growth in residential revenue
booking from FY2012E on account of three large projects-Golfshire,
White Meadows and UB. We also expect the company to launch
large mid-income housing projects in Bangalore and Chennai in the
next couple of quarters.
Commercial market: Prestige has about 2 mn sqft of finished office
space which will likely be absorbed as the demand for commercial
space in Bangalore picks up.
Retail developments: Prestige has the most successful retail mall
in Bangalore called ‘The Forum’. Prestige is also investing in
developing seven new retail malls with a total leasable are of 2.7 mn
sqft by FY15E.
Large balance sheet through growth in investment assets: We
see visibility in Prestige re-investing its residential cash flows to
create investment assets. Prestige has an ongoing rental portfolio
earning annual rental revenues of Rs1.5+ bn.
Well funded balance sheet: Prestige has raised about Rs12 bn
through its IPO in October 2010. This has reduced the debt-equity
ratio from about 1X to 0.4X.
Valuation
The stock is currently trading at 1.7X FY12E P/B vs sector average of
1.4X. On 12-month forward P/E, Prestige trades at 12.8X vs sector
average of 11.1X. We forecast an FY12E ROE of 14% and believe
that current valuations reflect a balanced risk-reward profile and rate
the stock as Neutral.
Our 12-m FY12E RNAV based target price is Rs169. We set our
target price at a 10% discount to FY12E RNAV of Rs188.
Key risks
Upside: (1) faster than expected completion of key projects such as
Kingfisher Towers and Golfshire, (2) faster than expected demand
recovery for its commercial assets; Downside: (1) delays in launches
in Bangalore and Chennai, (2) adverse demand scenario in South
India.
Presence across all real estate verticals
Prestige is a South India based real estate developer with a presence across four business
segments (residential, commercial, retail and hospitality), with a total land bank of
approximately 483 acres. Prestige has a good development track record, having already
delivered about 38 mn sqft including marquee projects such as UB City, ‘The Forum’ Mall
and Shantiniketan. Currently the company has about 31 mn sqft of ongoing projects and
about 14 mn sqft of projects under development.
While growth appears robust, there is a reinvestment risk
In our view, the company faces a re-investment risk as it plans to invest cash flow
generated by the residential business into building commercial/retail assets. While a steady
stream of commercial income would mean that Prestige has steady revenues, there is also
the risk that further plans may be hampered from delays in luxury residential projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Prestige Estates (PREG.BO; Neutral): Balanced risk-reward
Investment view
We initiate coverage on Prestige Estates with a Neutral rating and 12-m
target price of Rs169. Prestige is a South India based developer with an
established presence across various business verticals including
residential, retail, commercial and hospitality projects. In our view, while
the key revenue drivers appear robust, we believe the significant scaleup
in execution needed could be a challenge leading to delays and
increased costs.
Residential market: Prestige has a large number of projects in the
luxury segment. We expect strong growth in residential revenue
booking from FY2012E on account of three large projects-Golfshire,
White Meadows and UB. We also expect the company to launch
large mid-income housing projects in Bangalore and Chennai in the
next couple of quarters.
Commercial market: Prestige has about 2 mn sqft of finished office
space which will likely be absorbed as the demand for commercial
space in Bangalore picks up.
Retail developments: Prestige has the most successful retail mall
in Bangalore called ‘The Forum’. Prestige is also investing in
developing seven new retail malls with a total leasable are of 2.7 mn
sqft by FY15E.
Large balance sheet through growth in investment assets: We
see visibility in Prestige re-investing its residential cash flows to
create investment assets. Prestige has an ongoing rental portfolio
earning annual rental revenues of Rs1.5+ bn.
Well funded balance sheet: Prestige has raised about Rs12 bn
through its IPO in October 2010. This has reduced the debt-equity
ratio from about 1X to 0.4X.
Valuation
The stock is currently trading at 1.7X FY12E P/B vs sector average of
1.4X. On 12-month forward P/E, Prestige trades at 12.8X vs sector
average of 11.1X. We forecast an FY12E ROE of 14% and believe
that current valuations reflect a balanced risk-reward profile and rate
the stock as Neutral.
Our 12-m FY12E RNAV based target price is Rs169. We set our
target price at a 10% discount to FY12E RNAV of Rs188.
Key risks
Upside: (1) faster than expected completion of key projects such as
Kingfisher Towers and Golfshire, (2) faster than expected demand
recovery for its commercial assets; Downside: (1) delays in launches
in Bangalore and Chennai, (2) adverse demand scenario in South
India.
Presence across all real estate verticals
Prestige is a South India based real estate developer with a presence across four business
segments (residential, commercial, retail and hospitality), with a total land bank of
approximately 483 acres. Prestige has a good development track record, having already
delivered about 38 mn sqft including marquee projects such as UB City, ‘The Forum’ Mall
and Shantiniketan. Currently the company has about 31 mn sqft of ongoing projects and
about 14 mn sqft of projects under development.
While growth appears robust, there is a reinvestment risk
In our view, the company faces a re-investment risk as it plans to invest cash flow
generated by the residential business into building commercial/retail assets. While a steady
stream of commercial income would mean that Prestige has steady revenues, there is also
the risk that further plans may be hampered from delays in luxury residential projects.
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