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Pending annuity capex to drive debt higher

Our view

Prestige Estates Projects (PEPL) achieved stellar pre-sales Rs39.15bn in Q1FY24 and collected Rs27.41bn while launched 3.11msf (Prestige Lavender Fields). Also delivered 5.90msf of projects in Bangalore. PEPL is geared up to launch ~35msf of residential projects across geographies in next 12-15months with sales potential of Rs320bn. PEPL is confident to achieve 25% presales growth guidance on the back strong launch pipeline. To keep the pre-sales growth momentum going, PEPL is expected to invest Rs40-50bn each year in business development to maintain strong launch pipeline. PEPL in Q1FY24 launched Prestige Lavender Fields, Whitefield, Bangalore with total saleable potential of 3.11msf and registered presales of Rs20.3bn. PEPL in next 4-5years is expected to add Rs30.4bn and Rs3.4bn annuity from office and retail projects respectively with a balance capex of Rs145bn.

For Q1FY24 Net D/E inched up to 0.61x with a net debt of Rs64.8bn due to land/project acquisition. PEPL is expected to generate free cashflow of ~Rs300bn from the residential projects in next 4-5years which will allow PEPL to maintain Net D/E below 0.5x even after funding capex projects and business development. We remain confident on PEPL’s performance with sustained demand in residential, diversifying to newer markets, increased traction in leasing and recovery in retail & hospitality. We valued PEPL on SoTP based target 1xNAV of Rs673/share at WACC 12.1%, Cap rate 9% and 15x EV/EBITDA Avg. FY24E. We recommend ‘ADD’ rating

Result Highlights:

* PEPL achieved stellar pre-sales of 3.83msf (PEPL share Rs3.41msf) in Q1FY24 which translates in the sales value of Rs39.15bn (PEPL share Rs35.6bn) wherein Rs20.3bn contributed by the new launch Prestige Lavender Fields in Whitefield, Bangalore. PEPL achieved average price realization of Rs10,244/sft.

* Additionally, Mumbai portfolio contributed Rs5.95bn in the quarter wherein The Prestige City Mulund contributed Rs4.5bn and Jasdan Classic Rs1.04bn.

* Company’s collection also followed the same trajectory and came in at Rs27.41bn with PEPL’s share of Rs24.84bn for Q1FY24.

* Revenue was below our estimates to Rs16.8bn (-36% q/q & -13.3% y/y) guided by the delivery of 5.77msf in the residential segment.

* Reported EBITDA of Rs5.3bn (-22.7% q/q & 14.1% y/y) with the margin of 31.3% (YSECe 24.5%) higher by our estimates due to exceptional item arise due to REIT’s convertible.

* Adj. PAT came in at Rs2.67bn (-42% q/q & 3.8x y/y) due to exceptional item and higher other income.

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