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Prestige Estate Projects Limited
Overweight
PREG.BO, PEPL IN
Asset build-out - a drag on near-term profitability
• 4QFY11 results in brief – 1] Net income of Rs702M (+29% Q/Q) in line
with estimates. 2] Revenues of Rs 4.7B (JPMe Rs 4.2B +28% Q/Q) better
than estimates but EBITDA margin at 19% disappointed. This given high
contribution from low margin Shantiniketan project which is now out of the
books. 3] Consolidated FY11 PAT of Rs 1.7B lower than standalone PAT
of Rs2B given accounting losses from rental subsidiaries (high interest and
depreciation expense in initial years). 4] Year end net debt is Rs9.9B (Net
D/E 0.49x). 5] FY11 deliveries were impressive at 16.6msf.
• Key highlights of analyst call- 1] FY12 bookings target Rs 16B vs. FY11
at Rs 14B. 2] FY12 Rentals Rs 2.1b (vs. FY11 Rs 1.5b) largely backed by
leasing done in FY11 3] New launches of ~15 msf primarily in large mid
income projects in Bangalore/Chennai. 4] Currently has Rs 17.6B of
unrecognized revenues and has stock value (to be liquidated over 3 years) of
Rs 49B (net of const. costs). JPM View: Ability to achieve bookings
guidance hinges on ability to monetize ready to sell stock (Rs 3.5b) and
launch of two large projects. Though overall hiring/ wage growth in
IT/ITES sector is healthy, political issues in Karnataka could hinder launch
targets.
• PT Rs 165 – We revise our Mar-12 PT to Rs 165 (old Rs 180). Our new PT
is based on a SOTP which values 1] Development business at 10x stabilized
cash flow (based on Rs 15B bookings) ; 2] FY12 target rent of Rs 2.1B at
11% cap rate and 3] Asset build out of CISCO/Capita land assets to be
completed over 4-5 years. Our earnings for FY12 /13E see a sharper cut by
49%/42% respectively as we now moderate our bookings growth to 8% Y/Y
(to Rs 15B), moderate margins to 29% (though KF tower recognition could
possibly change the profile materially) and factor in start up losses in rental
business.
• Investment view: Macro RE environment in Bangalore on a medium term
(2-3 years) basis looks healthy. However, PEPL is unlikely to be a FCF
generator as its rental business is in a heavy capex mode. Valuations are
expensive relative to peer group, on our estimates; however, our earnings
CAGR of 45% despite the cut and high visibility on asset build makes us
retain OW.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Prestige Estate Projects Limited
Overweight
PREG.BO, PEPL IN
Asset build-out - a drag on near-term profitability
• 4QFY11 results in brief – 1] Net income of Rs702M (+29% Q/Q) in line
with estimates. 2] Revenues of Rs 4.7B (JPMe Rs 4.2B +28% Q/Q) better
than estimates but EBITDA margin at 19% disappointed. This given high
contribution from low margin Shantiniketan project which is now out of the
books. 3] Consolidated FY11 PAT of Rs 1.7B lower than standalone PAT
of Rs2B given accounting losses from rental subsidiaries (high interest and
depreciation expense in initial years). 4] Year end net debt is Rs9.9B (Net
D/E 0.49x). 5] FY11 deliveries were impressive at 16.6msf.
• Key highlights of analyst call- 1] FY12 bookings target Rs 16B vs. FY11
at Rs 14B. 2] FY12 Rentals Rs 2.1b (vs. FY11 Rs 1.5b) largely backed by
leasing done in FY11 3] New launches of ~15 msf primarily in large mid
income projects in Bangalore/Chennai. 4] Currently has Rs 17.6B of
unrecognized revenues and has stock value (to be liquidated over 3 years) of
Rs 49B (net of const. costs). JPM View: Ability to achieve bookings
guidance hinges on ability to monetize ready to sell stock (Rs 3.5b) and
launch of two large projects. Though overall hiring/ wage growth in
IT/ITES sector is healthy, political issues in Karnataka could hinder launch
targets.
• PT Rs 165 – We revise our Mar-12 PT to Rs 165 (old Rs 180). Our new PT
is based on a SOTP which values 1] Development business at 10x stabilized
cash flow (based on Rs 15B bookings) ; 2] FY12 target rent of Rs 2.1B at
11% cap rate and 3] Asset build out of CISCO/Capita land assets to be
completed over 4-5 years. Our earnings for FY12 /13E see a sharper cut by
49%/42% respectively as we now moderate our bookings growth to 8% Y/Y
(to Rs 15B), moderate margins to 29% (though KF tower recognition could
possibly change the profile materially) and factor in start up losses in rental
business.
• Investment view: Macro RE environment in Bangalore on a medium term
(2-3 years) basis looks healthy. However, PEPL is unlikely to be a FCF
generator as its rental business is in a heavy capex mode. Valuations are
expensive relative to peer group, on our estimates; however, our earnings
CAGR of 45% despite the cut and high visibility on asset build makes us
retain OW.
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