Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Flying High
We recommend Prestige Estates Projects (PEPL) because of its strong presence
across segments in Bangalore (71% of its land bank) where the absorption level
continues to remain healthy unlike in other markets in India. PEPL’s operating
cash flow is set to improve over the next two years with improvement in
realisation from debtors and higher rental income. We believe an outstanding
sum of Rs4.3bn related to Shantiketan (Bangalore) project likely to be received
by PEPL over the next three quarters (Rs1bn received in 3QFY12) as the office
leasing environment remains conducive in Bangalore. We expect PEPL’s yearly
rental run rate to show a CAGR of 23% over FY12-14E at Rs2.8bn wherein 25% of
incremental supply is pre-committed. Also, most of its projects like White
Meadows/Kingfisher Tower/Polygon would cross the threshold limit in coming
quarters, thereby driving up revenues. We assign a Buy rating to PEPL with a
target price of Rs143.
Absorption level to remain strong in Bangalore: Our interaction with various real
estate brokers indicated that absorption in the residential segment will remain strong in
2012, thanks to demand from the IT/ITES sector and better affordability compared to
other cities in India. Around 90% of the brokers indicated that residential prices are
expected to go up by 10-15% over the next six-nine months from current levels.
Though demand in Bangalore is largely dependent on the IT/ITES sector, the recent
absorption was driven across sectors, which augurs well for developers. Also, brokers
have indicated that Bangalore (East) has a greater potential with respect to absorption
on account of upcoming IT/ITES offices. This is a positive for PEPL which has land
bank at Whitefield, Sarjapur and Marthahalli, all located in Bangalore (East).
Sufficient cash flow to fund annuity assets, debt obligations: We expect PEPL to
maintain its existing pre-sales run rate of Rs20bn in FY13 because of its aggressive
new project launch pipeline and steady Bangalore market, also enabling it to maintain
the run rate of Rs3bn customer advances/quarter. PEPL’s debtors increased by Rs6bn
in FY11 on account of the ongoing completion of its Shantiketan and Oasis projects (in
Bangalore), which was a major overhang on its stock’s performance. However, the
company managed to realise Rs2.8bn from Shantiketan and Oasis projects as it
focused on handover and also on improvement in leasing activity in the Shantiniketan
project. Consequently, we expect PEPL to generate Rs11bn of cash flow from
operations over FY11-14E versus Rs5.2bn of negative operating cash flow generated
over FY08-11, which would suffice to meet its capex requirement and debt obligations.
Valuation: At the CMP, PEPL trades at 1.3x P/BV and 9.2x P/E on FY14E earnings
and at 40% discount to our one-year forward NAV. We assign a Buy rating to PEPL
with a TP of Rs143 based on 20% discount to one-year forward NAV from real estate
business and assigning 12x FY14E profits to its facilities and management business.
Valuation
We assign Buy rating with a target price of Rs143
PEPL is trading at a 40% discount to our NAV which offers attractive risk-reward profile given its rising rental
income, healthy balance sheet (0.6x net D/E), less capital intensive JDA (Joint Development Agreement)
projects, un-recognised revenue (Rs28bn) and positive operating cash flow. We expect its Bangalore
property (contributing 88% to Gross NAV) to continue do well with steady absorption and stable inventory
levels, thanks to demand from the IT/ITES sector. The company’s stock is trading at 9.2x FY2014E EPS and
1.3x FY2014E P/BV, which is attractive given the 64% earnings CAGR expected over FY12-14E and trading
at discount to its historical P/BV average of 1.8x. We assign a Buy rating to PEPL with a target price of
Rs143 based on 20% discount to our one-year forward NAV from real estate business to factor in higher
exposure to Bangalore market and JDA projects, assigning 12x on FY14E profits to its facilities and
management business.
Exhibit 1: Valuation summary
One-year forward NAV (Rs per share)
Residential 70
Commercial 86
Retail 37
Hospitality 49
Advances paid for land 5
Facilities & maintenance (12x FY14E profits) 9
Total 258
Less: Net debt (54)
Less: Present value of taxes (28)
NAV/share (Rs) 177
Target price (Rs) 20% discount to NAV 143
Source: Nirmal Bang Institutional Equities Research
Key Assumptions
Residential segment valued at Rs70/share
We have assumed average selling price of Rs8,100/sq ft and Rs8,260/sq ft for its Golfshire and White
Meadows (Phase I&II) projects, respectively. PEPL has got a strong response for its newly launched
project Tranquility (2QFY12) and Bellavista (4QFY12). Over the next three years, revenues of the
residential segment would be largely driven by five projects i.e. Golfshire, White Meadows, Tranquility,
Kingfisher Tower and Bell Vista. All these five projects contribute 62% to our residential GNAV. We
have factored in 7% price escalation in construction costs and 5% increase in capital value from FY13
onwards for all its projects. We have assumed PEPL will develop the entire 33mn sq ft and sell it by
FY21. Consequently, we have valued its residential segment at Rs23,059mn, translating into
Rs70/share.
Commercial segment valued at Rs86/share
Over the next three years, revenues of the commercial segment would be largely driven by Polygon and
Technology Park, for which we have assumed average selling price of Rs9,050/sq ft and Rs 3,840/sq ft,
respectively. We expect Cessna B7 block and Exora block 3 will be delivered for fit-outs by end of FY13
and should reach its peak occupancy by end of FY14. We have factored in 7% price escalation in
construction costs and 5% increase in capital value from FY13 onwards for all its projects, but we have
factored in zero increase in rentals in FY13 with a 5% increase from FY14 onwards. We have assumed
PEPL will develop the entire 17mn sq ft by FY21.Consequently, we have valued its commercial
segment at Rs28,128mn, translating into Rs86/share.
Retail segment valued at Rs37/share
We expect only one additional mall to get operational over the next one year i.e. Forum Vijaya in
Chennai with average rental of Rs70/sq ft and expect it to touch peak occupancy by the end of FY14.
Over the next two years, rentals would be largely driven by its three operational malls. We have factored
in 7% escalation in construction costs and 5% increase in capital value from FY13 onwards for all its
projects, but we have factored in zero increase in rentals in FY13 with 5% increase from FY14 onwards.
We have assumed PEPL will develop the entire 8.6mn sq ft by FY21. Consequently, we have valued
its retail segment at Rs12,153mn, translating into Rs37/share.
Hospitality segment valued at Rs49/share
We expect FVM service apartment and Golf club house to be operational over the next two years, which
is likely to contribute Rs122mn of rental income as peak occupancy is reached. Over the next two
years, rentals will be largely driven by three operational properties. We have factored in 7% escalation
in construction costs and 5% increase in capital value from FY13 onwards for all its projects. We have
assumed PEPL will develop the entire 2.4mn sq ft by FY21. Consequently, we have valued its retail
segment at Rs15,931mn, translating into Rs46/share.
We have assigned 15% cost of equity and 10% capitalisation rate.
We have assumed tax rate of 28% from FY13 onwards.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Flying High
We recommend Prestige Estates Projects (PEPL) because of its strong presence
across segments in Bangalore (71% of its land bank) where the absorption level
continues to remain healthy unlike in other markets in India. PEPL’s operating
cash flow is set to improve over the next two years with improvement in
realisation from debtors and higher rental income. We believe an outstanding
sum of Rs4.3bn related to Shantiketan (Bangalore) project likely to be received
by PEPL over the next three quarters (Rs1bn received in 3QFY12) as the office
leasing environment remains conducive in Bangalore. We expect PEPL’s yearly
rental run rate to show a CAGR of 23% over FY12-14E at Rs2.8bn wherein 25% of
incremental supply is pre-committed. Also, most of its projects like White
Meadows/Kingfisher Tower/Polygon would cross the threshold limit in coming
quarters, thereby driving up revenues. We assign a Buy rating to PEPL with a
target price of Rs143.
Absorption level to remain strong in Bangalore: Our interaction with various real
estate brokers indicated that absorption in the residential segment will remain strong in
2012, thanks to demand from the IT/ITES sector and better affordability compared to
other cities in India. Around 90% of the brokers indicated that residential prices are
expected to go up by 10-15% over the next six-nine months from current levels.
Though demand in Bangalore is largely dependent on the IT/ITES sector, the recent
absorption was driven across sectors, which augurs well for developers. Also, brokers
have indicated that Bangalore (East) has a greater potential with respect to absorption
on account of upcoming IT/ITES offices. This is a positive for PEPL which has land
bank at Whitefield, Sarjapur and Marthahalli, all located in Bangalore (East).
Sufficient cash flow to fund annuity assets, debt obligations: We expect PEPL to
maintain its existing pre-sales run rate of Rs20bn in FY13 because of its aggressive
new project launch pipeline and steady Bangalore market, also enabling it to maintain
the run rate of Rs3bn customer advances/quarter. PEPL’s debtors increased by Rs6bn
in FY11 on account of the ongoing completion of its Shantiketan and Oasis projects (in
Bangalore), which was a major overhang on its stock’s performance. However, the
company managed to realise Rs2.8bn from Shantiketan and Oasis projects as it
focused on handover and also on improvement in leasing activity in the Shantiniketan
project. Consequently, we expect PEPL to generate Rs11bn of cash flow from
operations over FY11-14E versus Rs5.2bn of negative operating cash flow generated
over FY08-11, which would suffice to meet its capex requirement and debt obligations.
Valuation: At the CMP, PEPL trades at 1.3x P/BV and 9.2x P/E on FY14E earnings
and at 40% discount to our one-year forward NAV. We assign a Buy rating to PEPL
with a TP of Rs143 based on 20% discount to one-year forward NAV from real estate
business and assigning 12x FY14E profits to its facilities and management business.
Valuation
We assign Buy rating with a target price of Rs143
PEPL is trading at a 40% discount to our NAV which offers attractive risk-reward profile given its rising rental
income, healthy balance sheet (0.6x net D/E), less capital intensive JDA (Joint Development Agreement)
projects, un-recognised revenue (Rs28bn) and positive operating cash flow. We expect its Bangalore
property (contributing 88% to Gross NAV) to continue do well with steady absorption and stable inventory
levels, thanks to demand from the IT/ITES sector. The company’s stock is trading at 9.2x FY2014E EPS and
1.3x FY2014E P/BV, which is attractive given the 64% earnings CAGR expected over FY12-14E and trading
at discount to its historical P/BV average of 1.8x. We assign a Buy rating to PEPL with a target price of
Rs143 based on 20% discount to our one-year forward NAV from real estate business to factor in higher
exposure to Bangalore market and JDA projects, assigning 12x on FY14E profits to its facilities and
management business.
Exhibit 1: Valuation summary
One-year forward NAV (Rs per share)
Residential 70
Commercial 86
Retail 37
Hospitality 49
Advances paid for land 5
Facilities & maintenance (12x FY14E profits) 9
Total 258
Less: Net debt (54)
Less: Present value of taxes (28)
NAV/share (Rs) 177
Target price (Rs) 20% discount to NAV 143
Source: Nirmal Bang Institutional Equities Research
Key Assumptions
Residential segment valued at Rs70/share
We have assumed average selling price of Rs8,100/sq ft and Rs8,260/sq ft for its Golfshire and White
Meadows (Phase I&II) projects, respectively. PEPL has got a strong response for its newly launched
project Tranquility (2QFY12) and Bellavista (4QFY12). Over the next three years, revenues of the
residential segment would be largely driven by five projects i.e. Golfshire, White Meadows, Tranquility,
Kingfisher Tower and Bell Vista. All these five projects contribute 62% to our residential GNAV. We
have factored in 7% price escalation in construction costs and 5% increase in capital value from FY13
onwards for all its projects. We have assumed PEPL will develop the entire 33mn sq ft and sell it by
FY21. Consequently, we have valued its residential segment at Rs23,059mn, translating into
Rs70/share.
Commercial segment valued at Rs86/share
Over the next three years, revenues of the commercial segment would be largely driven by Polygon and
Technology Park, for which we have assumed average selling price of Rs9,050/sq ft and Rs 3,840/sq ft,
respectively. We expect Cessna B7 block and Exora block 3 will be delivered for fit-outs by end of FY13
and should reach its peak occupancy by end of FY14. We have factored in 7% price escalation in
construction costs and 5% increase in capital value from FY13 onwards for all its projects, but we have
factored in zero increase in rentals in FY13 with a 5% increase from FY14 onwards. We have assumed
PEPL will develop the entire 17mn sq ft by FY21.Consequently, we have valued its commercial
segment at Rs28,128mn, translating into Rs86/share.
Retail segment valued at Rs37/share
We expect only one additional mall to get operational over the next one year i.e. Forum Vijaya in
Chennai with average rental of Rs70/sq ft and expect it to touch peak occupancy by the end of FY14.
Over the next two years, rentals would be largely driven by its three operational malls. We have factored
in 7% escalation in construction costs and 5% increase in capital value from FY13 onwards for all its
projects, but we have factored in zero increase in rentals in FY13 with 5% increase from FY14 onwards.
We have assumed PEPL will develop the entire 8.6mn sq ft by FY21. Consequently, we have valued
its retail segment at Rs12,153mn, translating into Rs37/share.
Hospitality segment valued at Rs49/share
We expect FVM service apartment and Golf club house to be operational over the next two years, which
is likely to contribute Rs122mn of rental income as peak occupancy is reached. Over the next two
years, rentals will be largely driven by three operational properties. We have factored in 7% escalation
in construction costs and 5% increase in capital value from FY13 onwards for all its projects. We have
assumed PEPL will develop the entire 2.4mn sq ft by FY21. Consequently, we have valued its retail
segment at Rs15,931mn, translating into Rs46/share.
We have assigned 15% cost of equity and 10% capitalisation rate.
We have assumed tax rate of 28% from FY13 onwards.
No comments:
Post a Comment