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Sales roll-on; debt under check for now

Prestige Estates (PEPL) continues to report healthy numbers on the residential front backed by sustained traction across Bangalore / MMR regions with booking value at INR 35.11bn (+66% YoY; +17% QoQ on a very high base). In FY23, PEPL targets bookings of over INR 120bn (Bangalore: INR 80-85bn + MMR: INR 25-30bn and balance from other cities including Delhi NCR and Hyderabad). Going forward, PEPL plans to create an Alternate Investment Fund (AIF) that will allow it to fund land purchases; it is also looking to enter markets of Delhi NCR and Pune aggressively. On the annuity front, PEPL has indicated INR 31bn of annuity income by FY28 (INR 5bn in retail + INR 26bn in commercial) with INR 140-150bn of capex spend. Net debt has increased to INR 40.47bn (+31% YoY; +3% QoQ; 0.41x net debt to equity) and remains under check for now. Going forward, the management also plans to acquire projects having INR 250bn worth of sales in the residential segment. We continue to like PEPL‘s aggressive growth across residential and commercial segments coupled with superior execution track record. We introduce FY25 estimates and roll forward estimates to Sep’23 TP of INR 625 (implying 36% upside). Key risks: delay in construction of annuity assets and inability to execute across MMR region.

* On track for booking value of INR 120bn in FY23: Booking value came in at INR 35.11bn (+66% YoY; +17% QoQ on a very high base) as realisation stood at INR 7,711psf (+29% YoY; down 10% QoQ). Collections came in at INR 26.03bn (+68% YoY; +21% QoQ). Area sold came in at 4.55msf (+28% YoY; +25% QoQ). Sales were led by Bangalore (INR 26.24bn) and MMR (INR 4.34bn) and the balance came from other geographies. Prestige City, Mulund, was the main contributor to MMR sales and has achieved INR 11bn of sales over May-Sep’22 despite Mulund being a highly competitive micro-market in Mumbai.

* Planned launches across cities; two large launches in MMR due: For 2HFY23, PEPL targets to launch multiple projects in Bangalore while launches in other geographies that are expected to drive sales include Prestige Bougainvillea Gardens, Noida, Prestige City, Mulund Phases, Prestige Ocean Towers, Marine Lines and Shiv Shahi Society, Worli. Moreover, from MMR itself PEPL targets to have INR 25-30bn of annual sales (INR 11.7bn in 1HFY23 where Jasdan Classic and Prestige City, Mulund, were launched). The target looks steep and remains dependent on new launches at Ocean Towers and Shiv Shahi.

* Annuity portfolio scale-up during FY26-28: PEPL has given a detailed breakdown of retail / commercial annuity income till FY28. It targets to have INR 10bn of annuity income (INR 9.3bn commercial + INR 2.1bn retail) by FY26 and intends to scale it to INR 31bn by FY28 (led by completions in BKC and Worli); capex spend of INR 140-150bn would be needed (PEPL share). Debt levels for the capex spend will remain a key monitorable and preleasing (especially MMR) will help provide visibility.

* Maintain ‘BUY’; Sep’23TP of INR 625: Key triggers in the stock include new residential launches, gradual completion of annuity portfolio and further project acquisitions. We maintain ‘BUY’ rating on PEPL with a Sep’23 TP of INR 625 (implying 36% upside).

* 7.39msf of projects launched across residential and commercial: During the quarter, PEPL had launches at spanning 7.39msf including The Prestige City Meridian Park (Phase-III) and Prestige Park Drive (Phase-III) in Bengaluru, Prestige Orchards in Hyderabad, Prestige Liberty Towers and The Prestige City Mulund Bellanza (Phase-II) in Mumbai.

* Reported financials: The company completed a total of three projects in the quarter, all of them located in Bengaluru and having a total of 2.58msf: i) Forum Falcon City Mall (Retail; 1.34msf), ii) Prestige Park Drive Phase I & II (Residential; 0.66msf) and iii) Prestige Minsk Square (Commercial; 0.58msf). Revenue recognised came in at INR 14.3bn with gross margin of 50% (+399bps YoY; +41bps QoQ) and EBITDA of INR 3.68bn (+flat YoY; down 20% YoY). EBITDA margin stood at 25.8% (-241bps; +200bps QoQ). PAT came in at INR 1.40bn and included an exceptional gain (INR 1.46bn; net of expenses) on account of asset sales in previous years.

* Business development: We include a business development value to factor in future acquisitions over the next 10 years starting FY26. We build booking value of INR 55bn in FY26 and scale it up 5% annually from there on. The present uptick across regions provides PEPL with an opportune time to acquire new projects and scale up faster. PEPL is currently looking to acquire INR 250bn worth of sales, which will offer a lot of visibility.

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