01-01-1970 12:00 AM | Source: ICICI Securities
Buy Brigade Enterprises Ltd For Target Rs.400 - ICICI Securities
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Pick up in leasing momentum remains key

Q1FY22 was a steady quarter for Brigade Enterprises’ (BRGD) with residential sales bookings of 0.8msf worth Rs4.8bn (up 82% YoY in volume and 92% in value terms) while incremental leasing and hotel segment operations remained weak on account of Covid. The recent QIP issuance of Rs5.0bn led to company’s share of net debt reducing by Rs5.4bn QoQ to Rs21.2bn.

With peak capex behind and recent QIP fund raise, the company’s liquidity position is comfortable and we expect BRGD’s share of rental NOI to grow at 25% CAGR over FY21-24E to Rs5.7bn driven by incremental leasing in Chennai/Bengaluru office projects from H2FY22. We reiterate our BUY rating with an unchanged target price of Rs400/share based on March 2022 DCF based NAV factoring in recent QIP issuance and new residential project additions. Key risks are prolonged weakness in office leasing and slowdown in residential demand.

 

* Steady quarter for residential sales: Q1FY22 saw BRGD achieving residential sales bookings of 0.8msf worth Rs4.8bn (82% YoY in volume terms and up 92% in value terms). This was driven by Hyderabad (Citadel) and Chennai (Xanadu/WTC) markets which contributed to 40% of the quarter’s sales similar to H2FY21. While Q1FY22 was relatively muted owing to second Covid wave impact, with 1.9msf of planned launches in the remainder of FY22E and 7.6msf of unsold inventory, we have built in sales bookings of 5.0msf each in FY22-24E worth over Rs30bn annually.

 

* Robust office rental collections, incremental leasing remains key: BRGD achieved Q1FY22 office rental collections of 99%. The focus remains on incremental leasing with WTC Chennai rentals commencing in Q1FY22 (2msf of which over 80% is leased) and Tech Gardens, Bengaluru (3msf of which over 40% is leased). As per company, ~1.5msf of fresh leasing discussions are in the advanced stage of which 0.8msf is in Tech Gardens. However, any deal closures are subject to lockdowns being lifted and international travel seeing pick up. Given ongoing COVID-19 impact, we have factored in a 30% rental income loss for BRGD’s two operational malls in Bengaluru in FY22E which clocked FY20 rental income of Rs1.2bn with mall rentals to trend back to FY20 levels from FY23E onwards. We estimate BRGD’s share of rental NOI to grow at a 25% CAGR over FY21-24E to Rs5.7bn.

 

* Net debt decreases QoQ on account of QIP proceeds and healthy collections: BRGD’s Q1FY22 collections remained healthy at Rs7.2bn of which Rs5.6bn was from residential segment. Overall, BRGD’s share of net debt reduced by Rs5.4bn QoQ to Rs21.2bn primarily on account of QIP proceeds of Rs5.0bn with residential segment debt reducing by Rs0.3bn QoQ to Rs4.7bn. With peak capex now complete in Tech Gardens, Bengaluru and World Trade Centre, Chennai we expect net debt levels to remain around current levels over FY22-23E.

 

Valuations & views

* We reiterate our BUY rating with an unchanged target price of Rs400/share based on March 2022 DCF based NAV factoring in recent QIP issuance and new residential project additions.

* For annuity business, we have factored in a 30% loss in mall rentals for FY22E and all incremental leasing in Tech Gardens/WTC Chennai to commence from Q2FY22.

* With hotels being a deep cyclical, we expect recovery to be visible only in FY23E and estimate a marginal EBITDA of Rs0.3bn in FY22E, Rs0.8bn in FY23E and Rs1.1bn in FY24E.

* With residential sales took a hit in H1FY21 owing to COVID impact, the strong bounce-back in Q3FY21 and Q4FY21 sales to above the pre-COVID run-rate of over 1msf has led us to build in sales bookings of 5.0msf each over FY22-24E accounting for a muted Q1FY22 in light of second Covid wave.

* Key risks to our call are prolonged weakness in office leasing and slowdown in residential demand in South India.

 

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