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Published on 13/07/2020 10:51:31 AM | Source: HDFC Securities Ltd

Buy Brigade Enterprises Ltd For The Target Rs.213 - HDFC Securities

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Capex behind, Leasing awaited

BEL 4QFY20/FY20 was operationally strong quarter as it sold ~1/4.3mn sqft on back of robust demand in residential segment. FY20 realization remained flat whilst presales grew 45% YoY to Rs 23.7bn. BEL achieved lifetime high leasing of 2.45mn sqft during FY20 and hotel occupancies increased from 64% to 67% YoY. Despite midterm challenges in Hospitality/Retail business, BEL has strong liquidity and office rental collection remains strong. Chennai WTC is already leased out. BTG property leasing is expected to pick up over next 12m. Debt is nearing peak and large Capex is already incurred. We maintain BUY with TP of Rs 213/sh (vs. Rs 218/sh earlier).

Reported PAT impacted by one-off: BEL posted revenue of Rs 6.4bn, in-line with our estimates. EBITDA/APAT however missed our estimates by 12%/21% on margin contraction and higher depreciation. Reported PAT came in at Rs 27mn (-96% YoY) on back of Rs 205mn write down of investment properties in leasing and hospitality segment.

Commercial rent collection at +96%; Concession given to retail tenants: Despite lockdown, rent collection from commercial space remained healthy at +96% in March/April/May-20 period as no client opted for force majeure. Also, there has been no renegotiation from clients to reduce rent except for small area in WTC Kochi. Company does not foresee major impact on leasing as it believes impact from WFH would largely get mitigated by demand for larger space to maintain social distancing.

Malls given limited relief, additional payment period: Although, malls have reopened since 10th June after easing of restrictions, footfall remains at 15-20% of pre-Covid level, multiplexes are yet to reopen. BEL has given 50% concession on rent during lockdown period (which shall be collected of next 3-4months) and lower MG until Sep-20. Collection in residential has also improved to 70% in May and is expected to reach 80-90% by end of 1QFY21.

Enough liquidity to tide out near term headwinds: Consolidated debt increased marginally to Rs 35.2bn (vs Rs 34.2bn on Dec’19), including SPVs debt of Rs 14bn. With Rs 4.4bn of cash, Net D/E stood at 1.17x. BRGD has opted for loan moratorium for hospitality in which it is facing significant headwinds. With international flights yet to resume, company is targeting operational breakeven at 35-40% occupancy and will provide additional support if needed. Considering current scenario, BEL has halted work on 2 of its 4 hospitality projects to conserve cash. Hospitality stake sale is on hold.

We reiterate BUY on Brigade Enterprises with revised TP of Rs 213/sh despite near term headwinds in hospitality as capex is largely behind and lease tieup in BTG will lead to further re-rating. We revise our FY21E/FY22E EPS estimates from Rs 2.7/4.6 to Rs -1.2/6.6 to account for weak demand in FY21 and subsequent recovery in FY22. Key risks (1) Delay in demand recovery in hospitality segment (2) Inability to monetize hospitality assets.

 

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