FY13 sales booking to beat guidance by ~20%
Execution on track to meet revenue booking, collections uptick guidance
We met Prestige Estates Projects’ (PEPL) management and visited key sites to get updates
on the business and outlook of Bangalore real estate market. The key takeaways are:
Despite moderation in the launch plan over 2HFY13, PEPL is comfortably poised to
beat FY13 sales guidance of ~INR25b by almost 20%. 8MFY13 sales stood at ~INR22.5b.
Execution progress steady in most annuity assets. We estimate annualized rental
income to post ~35% CAGR over FY12-15E to ~INR4.6b.
Progress in development projects are on track to meet guidance of 2-2.5x scale-up in
quarterly revenue run-rate. We expect an uptick in collections run-rate to INR6b/Q.
Upgrading our NAV-based target price by ~9% to INR195 and FY13E/14E EPS estimates
by 4-8%. While the stock has already been re-rated in line with expectation, further
upside hinges on strengthening of P&L and cash flow hereon. Maintain Buy.
Expect fewer launches in 2HFY13…
PEPL plans to launch fewer projects in 2HFY13 (2-2.5msf v/s ~8msf in 1HFY13),
which may thwart its prevailing healthy sales run-rate. Among the key planned
projects, company has soft-launched Casa Bella (0.36msf @INR3,800/sf) at
Electronic City in 3QFY13 and sold ~50% of the inventory. Among the rest, Royal
Garden (1.4msf @INR3,750/sf), Downtown (Chennai, 0.15msf @INR9,000/sf) and
Brooklyn Height (0.13msf @INR5,000/sf) are expected to be launched in 4QFY13.
…yet would comfortably beat sales guidance
PEPL achieved INR4-4.5b of sales over October-November 2012, which takes its
8MFY13 sales to ~INR22.5b v/s ~INR25b of annual sales guidance for FY13. Bella
Vista, Fern Residency and the newly-launched Casa Bella are the key sales
contributors so far in 3QFY13. It hopes to achieve full year sales of ~INR30b. We
upgrade our estimates to INR29.7b/32b in FY13E/14E (v/s INR27b/30b earlier).
INR5b+/Q revenue booking seen from 3QFY13
We note on-track movement in most of the key residential projects which are
expected to generate revenues by 2HFY13. On the back of ~INR50b+ of
unrecognized revenues and steady execution progress, we expect the gap
between revenue booking (average INR2-2.5b/Q) and sales run-rate (INR5-6b/
Q) to narrow meaningfully, with almost 2-2.5x scale-up in revenue recognition
from 3QFY13. Thus, we estimate ~INR1.5b/INR2.2b/INR1.7b/INR0.5b of revenue
booking from Kingfisher Tower/Tranquillity/Bella Vista/Park View respectively.
Rental income poised for strong growth over FY13E-15E
PEPL has 1.65msf of non-yielding pre-leased area, which is expected to generate
meaningful rental income over FY13E-14E on completion. Key projects where
pre-leasing happened and are expected to be delivered over the next 6 months
are: (1) Exora Block 3 (0.21msf, by Jan-13), (2) Vijaya Mall, Chennai (0.3msf, by
Jan-13) and (3) Cessna Block 7 (0.3msf, by Mar-13). Among others, almost 20-30%
of leasing has been done in Mangalore (0.32msf) and Hyderabad Mall (0.36msf), which
are expected to be operational by 3QFY14. We expect annuity income from commercial
and malls to improve to ~INR2.1b in FY13E (annualised INR2.8b), INR2.9b in FY14E
(annualized INR3.4b) and ~INR4.6b (annualized) by FY15E v/s INR1.68b of FY12.
Key annuity assets witness healthy progress
Cessna Business Park: Cessna Block 7 is likely to be handed for fit-outs in December
2012, post which it will have 3 months of rent-free period. Thus, it is unlikely to
contribute to FY13 rentals. Cessna Block 8 is at G+1 level of construction progress.
PEPL has slowed down construction in Block 8, as Cisco is yet to give the mandate for
the same, which it expects to get by January 2013 and subsequently complete the
construction by June 2013. Block 7 is likely to contribute rental income of INR223m
(83% is PEPL share), thus taking the total annualized rental income from Cessna to
~INR993m.
Exora Business Park: Exora Block 3 is completed and fit-out work is in progress among
key tenants like Verizon, QBE etc. The block is likely to yield rent from January 2013.
Block 2 would be completed by May 2013, while another ~0.2msf of commercial
block is under-construction and shall be ready by August 2013. We estimate FY13E
exit rental run-rate from Exora at ~INR240m.
Re-rating priced in, steady operations to drive stock hereon
On the back of operating performance being ahead of estimate, we upgrade our NAVbased
target price by ~9% to INR195 and FY13E/14E EPS estimates by 4-8%. The stock
has been re-rated over past couple of quarters in line with our expectation, leading
to P/B upgrading from 1x (4QFY12) to 2.1x (at present). Going ahead, we expect further
upside hinges on strengthening of P&L and cash flow on the back of robustness in
sales momentum and execution.
The stock trades at PER (x) of 16.3x FY14E EPS of INR10.4, 2.1x FY14E BV and at 18%
discount to our NAV estimate of INR195. Maintain Buy.
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