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Residential sales see strong uptick

Q4FY21 saw Prestige Estates Projects’ (PEPL) gross residential bookings rising 53% YoY in value terms to Rs18.5bn on the back of strong response to new launches of 4.7msf during the quarter and monetisation of completed inventory across projects. With a strong pipeline of launches of 12-15msf in FY22E, this momentum in residential sales is expected to sustain. Post completion of Phase1 of the annuity asset sale transaction to Blackstone group, PEPL’s consolidated net debt has reduced by Rs72bn QoQ to 13.1bn (net D/E of 0.2x) and post expected receipt of Rs17bn in Phase 2 of the transaction, PEPL is set to become net cash positive in H1FY22. The company is embarking on a fresh round of capex of Rs30bn over FY22-25E to regrow its rental portfolio. We retain our ADD rating with a revised DCF based target price of Rs317/share (earlier Rs311) factoring in balance sheet adjustments. Key risks to our call are a slowdown in residential demand and continued weakness in office leasing.

Residential sales see continued recovery:

PEPL reported gross sales bookings of Rs18.5bn in Q4FY21 (PEPL share at Rs14.7bn) vs. Rs20.3bn in Q3FY21 (PEPL share at Rs15.8bn) which was up 53% YoY in value terms led by strong response to new launches of 4.7msf during the quarter. For FY21, new launches contributed to over 30% of the year’s gross sales value of Rs54.6bn along with monetisation of completed inventory which accounted for 46% of sales bookings. As result, gross collections for FY21 were also up 9% YoY to Rs50.8bn (PEPL share at Rs40.3bn) in spite of Covid related disruption in H1FY21.

Strong residential launch pipeline for FY22:

As per PEPL management, there is a large pipeline of residential launches of 12-15msf lined up between July-December 2021 across South India (Prestige Smart City), Noida (NCR) and Mumbai (Jasdan Classic project). While Q4FY21 has seen continued sales momentum, the company has not given any formal guidance but has indicated that they expect a strong recovery in demand across the board from Q2FY22 if second Covid wave impact wanes in the coming months. The company’s focus will continue to largely be on midincome projects with few luxury projects thrown in depending on the location.

Completion of Blackstone deal significantly brings down debt levels:

PEPL had consolidated net debt of Rs84.6bn as of Dec’20 which has now reduced to Rs13.1bn (net D/E of 0.2x) post completion of Phase 1 of the transaction. As per company’s management, the Phase 1 proceeds of Rs74.6bn has resulted in gross debt reducing in annuity assets and post completion of Phase 2 of the transaction, PEPL will receive an additional Rs17bn which will enable the company to become net cash positive in H1FY22. The company has given guidance for an annual exit rental income of Rs3.5bn by Mar’22 and is embarking on a fresh round of capex with current invested capital of Rs12bn and incremental committed capex of Rs30bn over FY22-25E of which company’s share of capex stands at Rs24.6bn.

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