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Prestige Estate Projects (PEPL) reported lower than expected standalone numbers for 3QFY12. Standalone
EBITDA declined 46% YoY to INR501m; EBITDA margin was 30% (v/s 38.4% in 2QFY12 and 23.4% in FY11).
Standalone revenue declined 54% YoY to INR1.7b, while PAT was INR281m (v/s INR544m in 3QFY11).
Sales momentum remains strong at ~1msf (INR4.7b), though lower than ~2.1msf (INR7.8b) in 2QFY12. Sales
for 9MFY12 were 3.6msf (INR14.6b) as against management guidance of INR15b-17b and our estimate of
INR17b for FY12.
Despite strong sales, revenue booking was subdued due to (a) non-commencement of revenue from White
Meadows and Tech Park III (management had earlier guided revenue recognition in 2HFY12), and (b) further
delay in getting completion certificate for Neptune Courtyard (expected completion in 3QFY12). No major
commercial leasing happened during 3QFY12 - rental income was INR399m v/s INR385m in 2QFY12.
Consolidated net debt stood at INR14b (effective exposure of PEPL is INR12.1b) v/s INR13b in 2QFY12. Cost of
debt moderated to 13.5% (v/s 13.61% in 2QFY12).
We believe that with its wider product presence and client base, PEPL would be a key beneficiary of the
outperforming Bangalore market. Key triggers for the stock: (a) improvement in customer collection and
debtors, (b) on-time monetization and execution of flagship projects such as Golfshire, Kingfisher Tower, etc,
and (c) acquisition of new turnkey projects.
The stock trades at 8.8x FY13E EPS of INR8.8x FY13E BV, and at 51% discount to our NAV estimate. Maintain Buy.
Key result highlights
White Meadows to commence revenue in 4QFY12: During 3QFY12, PEPL's
standalone revenue declined by 54%YoY to INR1.7b (30%QoQ up). Despite strong
sales, revenue booking was subdued due to a) no revenue commencement from
White Meadows and Tech Park III (Management earlier guided for revenue
recognition in 2HFY12) and b) delay in Occupancy Certificate at Neptune Courtyard
(was expected to be completed in 3QFY12). Out of INR32.3b of stated sales in
ongoing projects, PEPL is yet to recognize revenue of INR27.9b. White Meadows,
with total sales of ~INR5.3b, could contribute meaningfully to 4QFY12 revenue.
Debtors level down by 8%QoQ: PEPL's debtors declined by ~INR0.7b to INR8.2b,
largely led by ~INR1b net collection in Shantiniketan project. Net debtor at
Shantiniketan stood at INR3.3b. The management has guided for at least ~75%
erosion of debtors in Shantiniketan project (INR3.3b) by 1QFY13.residential
(currently at ~INR1.4b) by 4QFY12.
Net debt up by INR1b, cost of debt moderated by 11bp: PEPL has raised ~INR0.7b
of debt (net off repayment of INR1.7b) during 3QFY12, taking its net debt to INR14b
as against INR13b in 2QFY12. The average borrowing cost of the company declined
by 11bps to 13.5%. Proportion of loan under lease rental discounting declines to
39% (v/s. 43% in QFY12). The management has guided for 0.55-0.6x as consolidated
net DER (x) level over next couple of years.
Operating performance
Strong sales momentum continues: PEPL maintained a strong sales momentum in
3QFY12 as well (despite no major launch) with ~1msf (INR4.7b) sales as against
~2.1msf (INR7.8b) in 2QFY12. 9MFY12 sales stood at 3.6msf (INR14.6b), which seems
above management guidance of INR15-17b and our est. of INR17b. The company
has sold another 30units in Jan-12 (post sales of almost 172units in 3Q) in
Sunnyside.
Launched Bella Vista in Jan-12: It has launched Bella Vista, Chennai (~5msf,
2613units, 60% stake) after much delay to securing approvals and hopes to launch
another 2msf (PEPL share of 0.7msf) in 4QFY12, including Maybery, Summerfield
etc (currently awaiting final approval). Bella Vista witnessed robust sales with
off-take of ~603units (out of 2613units) till Jan-12, and during the period PEPL has
increased the price from INR4100/sf to INR4400/sf.
Sales driven by mid-income launches: Sales from mid-income projects accounted
for 81%/66% of overall sales volume/value. However sales in premium segment
improved sequentially to ~INR0.8b (v/s. 0.4b in 2Q). Average realization improves
by 28%QoQ to INR4720/sf on account of a) Increase in realization across each
segment and b) higher proportion of premium segment sales (16% v/s. 5% in 2Q).
The key sales contributors are 1) Sunny side (~INR1.1b), b) Tranquility (INR1.6b),
and c) White Meadows (INR0.4b).
Collection deteriorated: Despite strong sales, customer collection slowed down
with to ~INRR3b v/s. run-rate of INR3.2b in 1/2QFY12. It collected only 13-18% of
its total sales value achieved in Sunnyside, Park View and Tranquility respectively.
No major leasing in 3Q, rental run-rate to improve in 4Q with Cessna block 5/6:
PEPL leased 0.5msf (sub-leasing, hence PEPL stake of 0) in Shantiniketan
commercial and 0.2msf (PEPL's stake of 0.07msf) of retail spaces during 3QFY12 as
against 1.8msfmsf (PEPL's stake of 1.1msf) in 1HFY12 and overall 1.9msf (PEPL's
stake 0.9msf) in FY11. While total pre-leasing stood at 7.8msf (PEPL's stake 5msf),
its rent yield asset remain constant QoQ at ~3.5msf. Rental income during 3QFY12
stood at INR399m v/s. INR385m in 2QFY12. Cessna block 5/6 has commenced rental
in Jan-12, which would improve rental run-rate in 4QFY12 by ~INR50m.
Revenue recognition to be bolstered in FY13: Owing to a conservative revenue
recognition policy, we expect PEPL's strong sales to be reflected in numbers only
in FY13, with most of its ongoing projects with strong pre-sales likely to hit 30%
threshold over FY13. However we are cutting our FY12 revenue and PAT estimates
by ~18% to account for delay in revenue booking.
Valuation and views
Amidst challenging environment, Bangalore property market has shown strong
resilience over other locations with steady sales momentum largely due to (a)
rational pricing movement, and (b) lower commercial vacancy amidst robust
demand. We believe, with its wider product presence and client base, PEPL would
be a key beneficiary.
However strong sales is yet to be reflected in revenue due to conservative revenue
booking policy and also slower than expected pace in execution/final approvals.
We are cutting our FY12 revenue and PAT estimates by ~18% to account for delay
in revenue booking.
We believe mitigation of concerns viz. a) improvement in customer collection
and debtors level, b) on-time monetization and execution of flagship projects
such as Golf shire, Kingfisher Tower etc, and (c) acquisition of new turnkey projects
(PEPL has been evaluating several projects and already paid INR2b over new land
acquisition, yet to be disclosed) would be key trigger for the stock.
The stock trades at PER (X) of 8.8x FY13 EPS of INR8.8, 1x FY13 BV and 51% discount
to our NAV estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Prestige Estate Projects (PEPL) reported lower than expected standalone numbers for 3QFY12. Standalone
EBITDA declined 46% YoY to INR501m; EBITDA margin was 30% (v/s 38.4% in 2QFY12 and 23.4% in FY11).
Standalone revenue declined 54% YoY to INR1.7b, while PAT was INR281m (v/s INR544m in 3QFY11).
Sales momentum remains strong at ~1msf (INR4.7b), though lower than ~2.1msf (INR7.8b) in 2QFY12. Sales
for 9MFY12 were 3.6msf (INR14.6b) as against management guidance of INR15b-17b and our estimate of
INR17b for FY12.
Despite strong sales, revenue booking was subdued due to (a) non-commencement of revenue from White
Meadows and Tech Park III (management had earlier guided revenue recognition in 2HFY12), and (b) further
delay in getting completion certificate for Neptune Courtyard (expected completion in 3QFY12). No major
commercial leasing happened during 3QFY12 - rental income was INR399m v/s INR385m in 2QFY12.
Consolidated net debt stood at INR14b (effective exposure of PEPL is INR12.1b) v/s INR13b in 2QFY12. Cost of
debt moderated to 13.5% (v/s 13.61% in 2QFY12).
We believe that with its wider product presence and client base, PEPL would be a key beneficiary of the
outperforming Bangalore market. Key triggers for the stock: (a) improvement in customer collection and
debtors, (b) on-time monetization and execution of flagship projects such as Golfshire, Kingfisher Tower, etc,
and (c) acquisition of new turnkey projects.
The stock trades at 8.8x FY13E EPS of INR8.8x FY13E BV, and at 51% discount to our NAV estimate. Maintain Buy.
Key result highlights
White Meadows to commence revenue in 4QFY12: During 3QFY12, PEPL's
standalone revenue declined by 54%YoY to INR1.7b (30%QoQ up). Despite strong
sales, revenue booking was subdued due to a) no revenue commencement from
White Meadows and Tech Park III (Management earlier guided for revenue
recognition in 2HFY12) and b) delay in Occupancy Certificate at Neptune Courtyard
(was expected to be completed in 3QFY12). Out of INR32.3b of stated sales in
ongoing projects, PEPL is yet to recognize revenue of INR27.9b. White Meadows,
with total sales of ~INR5.3b, could contribute meaningfully to 4QFY12 revenue.
Debtors level down by 8%QoQ: PEPL's debtors declined by ~INR0.7b to INR8.2b,
largely led by ~INR1b net collection in Shantiniketan project. Net debtor at
Shantiniketan stood at INR3.3b. The management has guided for at least ~75%
erosion of debtors in Shantiniketan project (INR3.3b) by 1QFY13.residential
(currently at ~INR1.4b) by 4QFY12.
Net debt up by INR1b, cost of debt moderated by 11bp: PEPL has raised ~INR0.7b
of debt (net off repayment of INR1.7b) during 3QFY12, taking its net debt to INR14b
as against INR13b in 2QFY12. The average borrowing cost of the company declined
by 11bps to 13.5%. Proportion of loan under lease rental discounting declines to
39% (v/s. 43% in QFY12). The management has guided for 0.55-0.6x as consolidated
net DER (x) level over next couple of years.
Operating performance
Strong sales momentum continues: PEPL maintained a strong sales momentum in
3QFY12 as well (despite no major launch) with ~1msf (INR4.7b) sales as against
~2.1msf (INR7.8b) in 2QFY12. 9MFY12 sales stood at 3.6msf (INR14.6b), which seems
above management guidance of INR15-17b and our est. of INR17b. The company
has sold another 30units in Jan-12 (post sales of almost 172units in 3Q) in
Sunnyside.
Launched Bella Vista in Jan-12: It has launched Bella Vista, Chennai (~5msf,
2613units, 60% stake) after much delay to securing approvals and hopes to launch
another 2msf (PEPL share of 0.7msf) in 4QFY12, including Maybery, Summerfield
etc (currently awaiting final approval). Bella Vista witnessed robust sales with
off-take of ~603units (out of 2613units) till Jan-12, and during the period PEPL has
increased the price from INR4100/sf to INR4400/sf.
Sales driven by mid-income launches: Sales from mid-income projects accounted
for 81%/66% of overall sales volume/value. However sales in premium segment
improved sequentially to ~INR0.8b (v/s. 0.4b in 2Q). Average realization improves
by 28%QoQ to INR4720/sf on account of a) Increase in realization across each
segment and b) higher proportion of premium segment sales (16% v/s. 5% in 2Q).
The key sales contributors are 1) Sunny side (~INR1.1b), b) Tranquility (INR1.6b),
and c) White Meadows (INR0.4b).
Collection deteriorated: Despite strong sales, customer collection slowed down
with to ~INRR3b v/s. run-rate of INR3.2b in 1/2QFY12. It collected only 13-18% of
its total sales value achieved in Sunnyside, Park View and Tranquility respectively.
No major leasing in 3Q, rental run-rate to improve in 4Q with Cessna block 5/6:
PEPL leased 0.5msf (sub-leasing, hence PEPL stake of 0) in Shantiniketan
commercial and 0.2msf (PEPL's stake of 0.07msf) of retail spaces during 3QFY12 as
against 1.8msfmsf (PEPL's stake of 1.1msf) in 1HFY12 and overall 1.9msf (PEPL's
stake 0.9msf) in FY11. While total pre-leasing stood at 7.8msf (PEPL's stake 5msf),
its rent yield asset remain constant QoQ at ~3.5msf. Rental income during 3QFY12
stood at INR399m v/s. INR385m in 2QFY12. Cessna block 5/6 has commenced rental
in Jan-12, which would improve rental run-rate in 4QFY12 by ~INR50m.
Revenue recognition to be bolstered in FY13: Owing to a conservative revenue
recognition policy, we expect PEPL's strong sales to be reflected in numbers only
in FY13, with most of its ongoing projects with strong pre-sales likely to hit 30%
threshold over FY13. However we are cutting our FY12 revenue and PAT estimates
by ~18% to account for delay in revenue booking.
Valuation and views
Amidst challenging environment, Bangalore property market has shown strong
resilience over other locations with steady sales momentum largely due to (a)
rational pricing movement, and (b) lower commercial vacancy amidst robust
demand. We believe, with its wider product presence and client base, PEPL would
be a key beneficiary.
However strong sales is yet to be reflected in revenue due to conservative revenue
booking policy and also slower than expected pace in execution/final approvals.
We are cutting our FY12 revenue and PAT estimates by ~18% to account for delay
in revenue booking.
We believe mitigation of concerns viz. a) improvement in customer collection
and debtors level, b) on-time monetization and execution of flagship projects
such as Golf shire, Kingfisher Tower etc, and (c) acquisition of new turnkey projects
(PEPL has been evaluating several projects and already paid INR2b over new land
acquisition, yet to be disclosed) would be key trigger for the stock.
The stock trades at PER (X) of 8.8x FY13 EPS of INR8.8, 1x FY13 BV and 51% discount
to our NAV estimate.
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