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Asset monetization awaited
We maintain NEU on Prestige Estate (PEPL) despite pre-sales and collections holding steady, owing to increasing debt and limited visibility on asset monetization. Our SOTP based TP is Rs 297/sh. We have increased our FY20/21E EPS estimates by 16%/20% respectively.
HIGHLIGHTS of the QUARTER
* PEPL reported 2QFY20 Revenue/EBIDTA of Rs 19.2/6bn. EBIDTA margin came in at 31.7% (vs 27.7/34.3% YoY/QoQ). APAT stood Rs 1.1bn (14/+43% YoY/QoQ). Robust performance resulted in Rev/EBIDTA/APAT beat of 19/26/4% respectively vs our estimates.
* Steady 2QFY20 pre-sales and collections: PEPL gross presales volume/value stood at 1.5mn sqft (+4% QoQ)/Rs 10.2bn (flat QoQ). The Company achieved 1HFY20 presales value of Rs 20.4bn (41% of the FY20 guidance). The quarter saw strong collections of Rs 10.8bn with the total collections for 1HFY20 at Rs 22bn (49% of the FY20 guidance).
* Leverage continues to be high: Net debt has increased by Rs 3.5bn QoQ to Rs 84.7bn in 2QFY20. This increase is attributable to
(1) acquisition of a land parcel in Hyderabad
(2) balance consideration for the acquisition of Forum mall. Prestige has guided for D/E to reduce to 1.4x by FY20E (vs 1.91x now, up from 1.86x in 1QFY20). This will be aided by future collections (collection target of Rs 45-50bn for FY20 of which 49% is achieved in 1HFY20) and monetization of retail/hospitality assets, a development on the same is expected in 3QFY20.
* Annuity portfolio: 2QFY20 leasing was 0.31mn sqft (1HFY20-0.63mn sqft). PEPL has an exit rental potential of ~Rs 9.5-10bn for FY20 with ~Rs 9.8bn of rental visibility as of 2QFY20.
* Upcoming projects: Prestige has launched 7.9mn sqft in 1HFY20 and is well on track to achieve the targeted ~10mn sqft launch in FY20E. The company has a 19mn sqft launch pipeline for the coming quarters across Bengaluru, Hyderabad, Chennai, Noida and Mumbai.
Despite an encouraging quarter on collections and pre-sales, PEPL has seen further debt built up, posing a challenge for the management in achieving optimal leverage (target D/E of 1.4 by FY20E). One of the few positives is that ~64% of debt is backed either by annuity or by rental securitization/ bill discounting. Launches during 1HFY20 were largely tilted towards commercial projects (6.2mn sqft out of 7.9mn sqft). The company continues to look at opportunities for monetization of its retail/hospitality assets and update on the same (expected in 3QFY20) would provide a re-rating trigger. Retain NEU with Rs 297/sh TP.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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