Balanced portfolio with comfort of South
Prestige Estate is one of the largest developers in Bangalore real estate
market with strong cashflow profile (from completed and existing ongoing
projects), healthy fresh sales momentum (average `7bn/qtr of fresh sales in
last 5 quarters), large outstanding order book pending revenue recognition
(`48bn) and growing rental income. We like Bangalore real estate market
from the volume offtake and pricing perspective. The southern market
presence and a balanced portfolio of investment and development
properties are the key reasons for us to like Prestige Estates. Initiate with
BUY and NAV based target price of `205 (Dec’13).
τ Robust cashflows, strong sales momentum, large order book and
growing rentals: 1) Prestige Estates has robust cash flow profile; collections
grew 39% to `4.6bn/qtr in FY13 from `3.3bn/qtr in FY12. Rental income grew
by 20% to `0.5bn/qtr in FY13. 2) Strong sales momentum witnessed in recent
past with 73% of the full year guidance of `25bn fresh sales already achieved
in 1HFY13. 3) Outstanding order book of `48bn (4x FY10-12 avg annual
revenue) will come into revenue recognition over FY13-15 and improve P&L
performance, collection momentum significantly. Consequently, we expect
ROEs to improve to 14.3/16.7% in FY14/15 from 9.8% in FY13, one of the
highest amongst the listed developers. We also expect net debt-equity to
come down from 0.74x as at Sept’12 to 0.5x by FY14.
τ Initiate with BUY and Dec’13 target price of `205: Our Dec’13 target price
of `205 is based on: a) 1x NAV arrived on DCF basis from development and
investment properties cashflows (incl terminal value of `80/sh) less net debt,
b) We also include `11/sh BV of land bank (pending development plan
finalisation) in addition to current project portfolio. Initiate with BUY rating.
τ Key risks - concentration/JDA risks and high exposure to non-resi
segment: 1) Concentration risk – performance of Bangalore IT/ITeS can
directly impact home/office demand, but we prefer Bangalore Real estate
market given NRI demand, stable pricing and end user driven demand, 2)
36% of portfolio is non-resi which is still in recovery phase with stable rental
for past many quarters, 3) JDA agreement can cap margins and input cost
pressure can impact margins, 4) Execution risk is embedded as most of the
value is derived from certain ongoing large projects; delay in any of these
high value projects can defer project monetisation.
No comments:
Post a Comment