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B rigade Enterprises
Rising earnings profile on new
launches, rental visibility; Buy
Debts backed by solid assets; tweaking PO
We reiterate our Buy rating on Brigade with a new PO of Rs110 (from Rs115)
based on a 10% discount to our net NAV estimate of Rs123, offering 61%
potential upside from current levels as we expect strong performance from the
commercial assets portfolio in FY12. At our PO, Brigade will trade close to its
three-year average P/B (1x) and P/E (12x) multiple, which is justified given
increasing sales volume, maturing commercial assets and rising earnings profile.
We believe while debt has remained elevated, most of it is longer term, backed by
commercial assets.
Maturing commercial assets to boost rental income
Brigade’s commercial assets together contribute 53% of its NAV and should all start
generating rental income in the next 12 months. Office leasing, meanwhile, has
seen substantial traction in the last few quarters. The retail mall is expected to be
launched in 3Q while the hotel is already operational. We expect these assets to
contribute Rs2.5bn to revenue from FY13 against just Rs1.2bn expected in FY12.
Residential launches to spruce volume
We expect sales volume to increase substantially from 2Q as Brigade launched
five new residential projects with over 5mn sq ft of saleable area across segments
– from super luxury villas to affordable apartments. We also expect the company
to achieve sales of 1.6mn sq ft in the residential segment in FY12/13 (vs just
0.7mn sq ft in FY11), despite our sluggish view on Bangalore residential market.
This is mainly due to attractive price points and the location of Brigade’s projects.
Strong earnings to reflect from FY13
We expect the benefits from recent residential launches and rental income from
the commercial assets to start accruing from FY13. Recent residential launches
should reach the recognition stage in FY13 while all of the company’s commercial
assets should be fully operational by end-FY12.
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