Published on 9/07/2020 12:19:00 PM | Source: Motilal Oswal Financial Services Ltd

Buy Brigade Enterprises Ltd For The Target Rs.195 - Motilal Oswal

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Office and Residential remain steady; COVID-19 dents Hotels

* BRGD has shown continued strength in delivering strong pre-sales volumesof ~1msf in the Residential segment,even in thesetesting times,as well asin its Leasing portfolio. Thismakes the companyone of the favoredplays in the Real Estate space.

* Leasing remains the cornerstone of the business in the near to long term,while Residential is likely to bounce back in 2HFY21E. Accounting for near-term challenges in Residential and Hospitality,we reduce our TP to INR195. However, reiterate Buy on account of favorable risk-reward.


Strong operational show amid COVID-19 crisis

* Residential shows strength amid COVID-19 outbreak: 4QFY20 pre-sales volume/value was up 10%/25% YoY to 1.05msf/INR6.5b.Average price realization (INR psf) was up 14% YoY to INR6,176. For FY20, pre-sales volume/value increased 44%/45% YoY to 4.26msf/INR23.8b.

* Leasing remains steady: Leasing revenuewas up 22% YoY to INR1.05b,driven by incremental leasing of 0.21msf in 4QFY20. In FY20,BRGD leased 2.45msf of incremental office and retail space,with an est.rental yield of INR2.4b.

* COVID-19 dents Hospitality:Hospitality was amongthe worst-hit segments due to COVID-19 impacting both business and leisure travel. In 4QFY20, revenue fromtheHospitality segment was down 9% YoY,with EBIT loss of INR4m. Management has guided for near-term challenges, with pickup expected in 2HFY21.For FY20, Hospitality revenue grew 8% YoY to INR3.3b.

* Financial performance:In 4QFY20, revenue / EBITDA / adj. PAT declined 16%/37%/70%, with EBITDA margin contraction at 710bp. For FY20, revenue / EBITDA / adj. PAT declined 12%/16%/40% YoY, with EBITDA margin contraction at 140bp.


Key management commentary highlights

* A) ~95% of the World Trade Centre (WTC), Chennai is leased out; expect rental income to flow from 4QFY21. ~50% of Brigade Tech Gardens (BTG), Bangalore is pre-leased,and rentals have commencedfrom 4QFY20. B) BRGD has opted for a loan moratorium (from Apr’20 to Aug’20) on debt pertaining to the Retail and Hospitality segments. Debt under moratorium amounts to ~INR12b.


Valuation and view

* Given the near-term challenges for the Residential and Hospitality segments, we lower our estimates by 15%/20% for pre-sales value/revenue for Residential/Hospitality. However, we expect momentum to continue in the medium term, driven by a robust line-up of launches across business segments, strong execution capabilities,and the right product mix. Maintain Buy,with TPof INR195.


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