Prestige Estates Projects- Lowering estimates and price target::Standard Chartered Research,

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Prestige Estates Projects
Lowering estimates and price target


 Q1 FY12 earnings were disappointing at Rs364m, with
sales dropping 4% yoy and 47% qoq to Rs2.5bn.
 New sales slackened – Prestige sold 0.46m sq ft at
lower realisation due to change in product mix leading to
16% qoq drop in sales to Rs2bn.
 Nevertheless, we expect healthy lease momentum,
recent launches in mid-income residential and strong
execution to sustain earnings momentum.
 We lower FY12 and FY13 earnings estimates by 25%
and 15%, respectively. We also reduce price target to
Rs151/sh (from Rs157), but maintain OUTPERFORM.


Weak revenue and earnings. Prestige Q1 was weak, with
net profit of Rs364m, mainly due to lower revenue booked
on percentage-completion-basis, which was down 4% yoy
and 47% qoq to Rs2.5bn. Though it has Rs17bn of unbooked sales (1.4x FY12 revenue estimate) we believe a
large part of these projects will not be able reach the
minimum revenue booking threshold in FY12.
Sales momentum slightly lower. Prestige sold 0.46m sq ft
at average realisation of Rs4,065/sq ft. While the run-rate
was in line with the FY11 average of 0.45m sq ft/qtr,
realisation was significantly lower, signifying shift in product
mix towards lower margin mid-income housing projects.
Note that we expect margin improvement going forward as
rental contribution increases; furthermore, Rs13bn of the
Rs17bn un-booked sales are from the luxury segment.
Other highlights. The company launched two residential
projects in Bangalore in July 2011: Tranquility (2,300 units)
and Parkview (240 units) and had an encouraging 30-50%
sales worth Rs3.7bn. Further in FY12, it plans to launch four
residential projects, three in Bangalore (Sunnyside,
Mayberry and Summerfield) and one in Chennai (Bella
Vista). In addition, the company expects to lease the 1m sq
ft Forum Vijaya mall at Rs70/sq ft. The company expects to
spend Rs10-12bn on construction across projects in FY12.
Lowering earnings. We lower revenue estimate due to
lower booking on percentage-completion-basis and we have
reduced margin to 30-32% due to the change in product mix
in the near term. Also, we build in higher interest costs due
to slower debt reduction. Net debt stood at Rs12bn as at
end Q1. This reduces our FY12 and FY13 earnings by 25%
and 15%, respectively, to Rs2.2bn and Rs2.9bn. Due to the
increase in FY12 net debt, we reduce our price target to
Rs151/sh (from Rs157/sh); maintain OUTPERFORM.