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UBS Investment Research
Prestige Estates Projects
B est proxy to Bangalore growth
Strong brand with robust track record
We believe Prestige’s: 1) joint development model, which gives it access to a
prime landbank of 51msf; 2) strong track record in value creation; and 3) mix of
luxury and mass housing and rental and for sale office and retail assets,
differentiates it from peers. We think Prestige provides the best exposure to
Bangalore’s growth potential (at 84% of our NAV estimate).
Our checks suggest Bangalore is a promising real estate market
Our recent visit to Bangalore and checks support our outlook for strong real estate
demand in Bangalore. We believe Bangalore real estate has significant growth
potential due to: 1) strong IT hiring, leading to higher leasing volumes; 2) rising
residential pre-sales volumes on end-user demand; and 3) favourable demographics
and affordable prices and rentals driving demand for new launches.
Strong pre-sales/rental growth the key catalyst
We foresee encouraging pre-sales in the upcoming pipeline of 2-15msf that targets
affordable/mid-income housing over the next six to 12 months, and a healthy 19%
CAGR in rental income over FY11-13E with strong execution momentum for
ongoing projects (47% of NAV) as near-term share price drivers. However, its
relative high exposure to luxury housing (amid rising rates) and oversupply in
pockets of Bangalore are risks.
Valuation: we lower our price target to Rs205
Our lower price target of Rs205 is based on a 25% discount to our NAV estimate
of Rs275 and factors in the risk of slowing sales at its luxury housing projects
(20% of our NAV) amid rising interest rates. That said, we view the recent share
price weakness (down 30% since the IPO) as a good buying opportunity.
Prestige Estates Projects
Prestige Estates Projects (Prestige) is a South India-focused real estate developer
with a diversified real estate portfolio in residential, commercial, retail, and
hospitality. Most of its developable area is in Bangalore (84%) and it is now
expanding to other South Indian cities. Prestige also provides allied services,
such as interior design, property management services, and sub-letting services.
Established 24 years ago, Prestige has developed a number of landmark
properties in Bangalore, including UB City, Prestige Shantiniketan, and the
Forum Mall.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Prestige Estates Projects
B est proxy to Bangalore growth
Strong brand with robust track record
We believe Prestige’s: 1) joint development model, which gives it access to a
prime landbank of 51msf; 2) strong track record in value creation; and 3) mix of
luxury and mass housing and rental and for sale office and retail assets,
differentiates it from peers. We think Prestige provides the best exposure to
Bangalore’s growth potential (at 84% of our NAV estimate).
Our checks suggest Bangalore is a promising real estate market
Our recent visit to Bangalore and checks support our outlook for strong real estate
demand in Bangalore. We believe Bangalore real estate has significant growth
potential due to: 1) strong IT hiring, leading to higher leasing volumes; 2) rising
residential pre-sales volumes on end-user demand; and 3) favourable demographics
and affordable prices and rentals driving demand for new launches.
Strong pre-sales/rental growth the key catalyst
We foresee encouraging pre-sales in the upcoming pipeline of 2-15msf that targets
affordable/mid-income housing over the next six to 12 months, and a healthy 19%
CAGR in rental income over FY11-13E with strong execution momentum for
ongoing projects (47% of NAV) as near-term share price drivers. However, its
relative high exposure to luxury housing (amid rising rates) and oversupply in
pockets of Bangalore are risks.
Valuation: we lower our price target to Rs205
Our lower price target of Rs205 is based on a 25% discount to our NAV estimate
of Rs275 and factors in the risk of slowing sales at its luxury housing projects
(20% of our NAV) amid rising interest rates. That said, we view the recent share
price weakness (down 30% since the IPO) as a good buying opportunity.
Prestige Estates Projects
Prestige Estates Projects (Prestige) is a South India-focused real estate developer
with a diversified real estate portfolio in residential, commercial, retail, and
hospitality. Most of its developable area is in Bangalore (84%) and it is now
expanding to other South Indian cities. Prestige also provides allied services,
such as interior design, property management services, and sub-letting services.
Established 24 years ago, Prestige has developed a number of landmark
properties in Bangalore, including UB City, Prestige Shantiniketan, and the
Forum Mall.
Statement of Risk
We believe key risks for real estate companies include a prolonged higher
interest rate environment (one+year), higher mortgage rates impacting consumer
affordability, slower annual GDP growth of <7% impacting demand for
residential and commercial properties, changes in foreign direct investment
regulations impacting capital availability for the sector, changes in regulatory
policies impacting commercial viability of development, and inflation impacting
consumer affordability.
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