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UBS Investment Research
Prestige Estates Projects
D eep value; Best Bangalore growth proxy
�� Event: Strong Bangalore pre-sales in Jul’11, re-enforces our confidence
With residential pre-sales (3.35msf) for Jul’11 up 37% YoY, 13% MoM, 7% YTD.
Further mgmt meeting re-enforces our confidence given – 1) Prestige sales of
~1.6msf in current qtr (vs. 0.48msf in 1Q) and 2-prime location launches on anvil
(~420 apts); 2) steady leasing momentum; 3) Thrust on reducing Shantiniketan
debtors + unsold inventory and execution based on our few site visits.
�� Impact: Maintain our 39% EPS CAGR FY11-14E
Given our expectations of strong pre-sales momentum continuing, rental (Rs1.4bn
pa in FY11) growing at 18% CAGR for FY11-13E with new assets getting leased;
and its ongoing high-value projects likely to be recognized in 4Q12 – we maintain
our 39% earnings CAGR, and believe FY12E growth will be more back-ended.
�� Action: Reiterate BUY; Continuing pre-sales, cash flow visibility the key
We see 1) strong pre-sales to upcoming launches (6-8msf in 9mFY12) 2) cash
flows (Rs8-10bn) from monetizing Shantiniketan’s debtors, unsold built stock and
office space; 3) growth of leased portfolio, 4) encouraging execution for ongoing
projects (47% of NAV) as key catalysts. Key risks are 1) potential slowdown in IT
sector, 2) relatively high exposure to luxury housing in Bangalore e.g Whitefield.
�� Valuation: Deep value at 68% disc to NAV, 1.2x P/BV
Stock’s 35% fall over last 3-mths seems unwarranted given strong fundamentals,
ROE-ROCE’s of 13-14% (among highest in the sector). While high rates regime is
an overhang, but see deep value outweigh risks. Prestige is our best exposure to
Bangalore’s growth (84% of NAV), the most promising market, in our view. Our
Rs205 price target is based on a 25% discount to our FY11E NAV/share of Rs275.
Risks
We believe the key risks for Prestige are 1) Potential decline in IT demand
following concerns on global recession impacting demand for commercial space
in Bangalore (IT hub of India); However, we believe concerns of a potential
significant slowdown are unwarranted as most IT companies continue to expand
significantly 2) Its relatively high exposure to premium residential housing (20%
of NAV) which is more prone to affordability issues amidst any slowdown in
recovery cycle, 3) intensifying competition in Bangalore and oversupply
concerns in particular pockets like Whitefield (17% of our NAV).
Valuation attractive at 67% disc to NAV
We believe Prestige’s core presence in Bangalore’s residential and commercial
markets, prime location land assets, domain expertise in residential, commercial
and integrated development projects, high proportion of rental assets and a
strong brand name differentiate the company.
Our price target of Rs205 is based on a 25% discount to our FY11E NAV/share
of Rs275. However, its lower discount vs. peers of 25-40% largely factors in 1)
Prestige’s dominant position and diversified asset mix in attractive Bangalore
market, 2) large contribution (23% of NAV) from rental yielding assets with
growth potential; 3) strong track record and brand franchise; and 4) concerns of
oversupply issues. Our base-case NAV/share of Rs275 involves the following
assumptions: 1) developmental volume of 44.85msf; 2) 9% cap rate for rental
yielding assets; 3) no price escalations; 4) average cost of capital of 14%; and 5)
a tax rate of 25%.
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
Risks to Prestige are a high exposure to high-end/luxury projects, high exposure
to Bangalore and a decline in commercial leasing and activity and regulatory
policy risks
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Prestige Estates Projects
D eep value; Best Bangalore growth proxy
�� Event: Strong Bangalore pre-sales in Jul’11, re-enforces our confidence
With residential pre-sales (3.35msf) for Jul’11 up 37% YoY, 13% MoM, 7% YTD.
Further mgmt meeting re-enforces our confidence given – 1) Prestige sales of
~1.6msf in current qtr (vs. 0.48msf in 1Q) and 2-prime location launches on anvil
(~420 apts); 2) steady leasing momentum; 3) Thrust on reducing Shantiniketan
debtors + unsold inventory and execution based on our few site visits.
�� Impact: Maintain our 39% EPS CAGR FY11-14E
Given our expectations of strong pre-sales momentum continuing, rental (Rs1.4bn
pa in FY11) growing at 18% CAGR for FY11-13E with new assets getting leased;
and its ongoing high-value projects likely to be recognized in 4Q12 – we maintain
our 39% earnings CAGR, and believe FY12E growth will be more back-ended.
�� Action: Reiterate BUY; Continuing pre-sales, cash flow visibility the key
We see 1) strong pre-sales to upcoming launches (6-8msf in 9mFY12) 2) cash
flows (Rs8-10bn) from monetizing Shantiniketan’s debtors, unsold built stock and
office space; 3) growth of leased portfolio, 4) encouraging execution for ongoing
projects (47% of NAV) as key catalysts. Key risks are 1) potential slowdown in IT
sector, 2) relatively high exposure to luxury housing in Bangalore e.g Whitefield.
�� Valuation: Deep value at 68% disc to NAV, 1.2x P/BV
Stock’s 35% fall over last 3-mths seems unwarranted given strong fundamentals,
ROE-ROCE’s of 13-14% (among highest in the sector). While high rates regime is
an overhang, but see deep value outweigh risks. Prestige is our best exposure to
Bangalore’s growth (84% of NAV), the most promising market, in our view. Our
Rs205 price target is based on a 25% discount to our FY11E NAV/share of Rs275.
Risks
We believe the key risks for Prestige are 1) Potential decline in IT demand
following concerns on global recession impacting demand for commercial space
in Bangalore (IT hub of India); However, we believe concerns of a potential
significant slowdown are unwarranted as most IT companies continue to expand
significantly 2) Its relatively high exposure to premium residential housing (20%
of NAV) which is more prone to affordability issues amidst any slowdown in
recovery cycle, 3) intensifying competition in Bangalore and oversupply
concerns in particular pockets like Whitefield (17% of our NAV).
Valuation attractive at 67% disc to NAV
We believe Prestige’s core presence in Bangalore’s residential and commercial
markets, prime location land assets, domain expertise in residential, commercial
and integrated development projects, high proportion of rental assets and a
strong brand name differentiate the company.
Our price target of Rs205 is based on a 25% discount to our FY11E NAV/share
of Rs275. However, its lower discount vs. peers of 25-40% largely factors in 1)
Prestige’s dominant position and diversified asset mix in attractive Bangalore
market, 2) large contribution (23% of NAV) from rental yielding assets with
growth potential; 3) strong track record and brand franchise; and 4) concerns of
oversupply issues. Our base-case NAV/share of Rs275 involves the following
assumptions: 1) developmental volume of 44.85msf; 2) 9% cap rate for rental
yielding assets; 3) no price escalations; 4) average cost of capital of 14%; and 5)
a tax rate of 25%.
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
Risks to Prestige are a high exposure to high-end/luxury projects, high exposure
to Bangalore and a decline in commercial leasing and activity and regulatory
policy risks
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