Prestige Estates Projects (PREG.BO)
Buy: Good Start to FY14 – Well Begun Is Half Done!
Top pick in India Property — We continue to like Prestige given its strong operational
performance, transparent NAV with high visibility, good disclosures and exposure to the
relatively better markets in South India. Post the ~25% correction in the last 2 months
(~20% underperformance vs Sensex), valuations at ~1.45x P/BV look reasonable.
Strong start to FY14 — Strong sales in Q1 at Rs10.2bn (1.77msf) means Prestige is
well on track to achieve its FY14 guidance of ~Rs37bn. New launches at ~4msf (FY14
guidance of 14msf) helped fuel the strong sales. New leasing at 0.44msf (Prestige's
share of 0.16msf) was in line with FY14 target of 2msf. With an exit rental income of
Rs2.8bn, we believe the FY14 guidance of Rs3.2bn should be comfortably achievable.
~Rs56bn unrecognized revenue provides visibility — Prestige plans to launch
~10msf over the next three quarters and has unrecognized revenues of ~Rs56b, which
should support strong EPS CAGR over FY13-15E (even on a high base). Management
expects projects with accumulated revenues of ~Rs16bn to hit the ~25% recognition
threshold in FY14.
Deliveries pick up; execution is key in the sector — Prestige delivered 2.48msf in
Q1, a big pick-up vs ~2.3msf in FY13. Execution remains the biggest ask from
investors in the property sector – sustenance is key.
Dividends could go up over the next two years — Once the rental portfolio matures
and reaches ~Rs5bn run rate, the company plans to finalize a dividend policy wherein
~50% of rental income is paid out and the balance reinvested – helping Prestige add
~1msf annually without incremental borrowing.
Change in Est; TP to Rs170 — We trim our ests marginally by ~1-2% incorporating
recent results, higher margins and interest/tax assumptions. We trim our TP to Rs170
factoring in: (1) revisions in net debt, customer advances and land bank, (2) marginal
increase in the tax rates to ~29%, (3) some push backs in the development portfolio,
(4) roll forward to Sep'14E from Mar'14E earlier. Our TP equates to ~1.8x Sep'14E BV.
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Buy: Good Start to FY14 – Well Begun Is Half Done!
Top pick in India Property — We continue to like Prestige given its strong operational
performance, transparent NAV with high visibility, good disclosures and exposure to the
relatively better markets in South India. Post the ~25% correction in the last 2 months
(~20% underperformance vs Sensex), valuations at ~1.45x P/BV look reasonable.
Strong start to FY14 — Strong sales in Q1 at Rs10.2bn (1.77msf) means Prestige is
well on track to achieve its FY14 guidance of ~Rs37bn. New launches at ~4msf (FY14
guidance of 14msf) helped fuel the strong sales. New leasing at 0.44msf (Prestige's
share of 0.16msf) was in line with FY14 target of 2msf. With an exit rental income of
Rs2.8bn, we believe the FY14 guidance of Rs3.2bn should be comfortably achievable.
~Rs56bn unrecognized revenue provides visibility — Prestige plans to launch
~10msf over the next three quarters and has unrecognized revenues of ~Rs56b, which
should support strong EPS CAGR over FY13-15E (even on a high base). Management
expects projects with accumulated revenues of ~Rs16bn to hit the ~25% recognition
threshold in FY14.
Deliveries pick up; execution is key in the sector — Prestige delivered 2.48msf in
Q1, a big pick-up vs ~2.3msf in FY13. Execution remains the biggest ask from
investors in the property sector – sustenance is key.
Dividends could go up over the next two years — Once the rental portfolio matures
and reaches ~Rs5bn run rate, the company plans to finalize a dividend policy wherein
~50% of rental income is paid out and the balance reinvested – helping Prestige add
~1msf annually without incremental borrowing.
Change in Est; TP to Rs170 — We trim our ests marginally by ~1-2% incorporating
recent results, higher margins and interest/tax assumptions. We trim our TP to Rs170
factoring in: (1) revisions in net debt, customer advances and land bank, (2) marginal
increase in the tax rates to ~29%, (3) some push backs in the development portfolio,
(4) roll forward to Sep'14E from Mar'14E earlier. Our TP equates to ~1.8x Sep'14E BV.
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