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Residential continues to shine; Office business steady

* Brigade Enterprises (BRGD)’s Residential segment stole the show with the best ever performance seen in terms of presales in a quarter (1.53msf in volume / INR9.2b in value). Commercial Office Leasing held ground with steady rental collections (99%), and the Retail business continued to see marked improvement in performance. However, Hospitality’s performance remains hinged on the resumption of work-related travel, which is still some time away.

* We remain positive on the medium- to long-term outlook for BRGD; our optimism is driven by (a) a robust outlook for the Residential business and (b) an expected uptick in Commercial Leasing. Reiterate Buy.

Residential continues heavy lifting; Commercial remains steady

* Best ever performance for Residential business: BRGD reported presales of 1.53msf (up 41% YoY) and booking value of INR9,232m (up 53%) in 3QFY21 – the highest sales seen in a quarter. Average price realization (INR/sf) was up 8% YoY to INR6,022.

* Office stands steady; Retail recovering gradually: The Office Leasing business remained stable, with rent collections at 99% in 3QFY21 for office leasing assets and an active leasing pipeline of ~1msf. Tenant occupancy at malls was higher, with consumption at 70% of pre-COVID levels.

* Green shoots in Hospitality albeit near-term challenges: The segment turned operational positive with gross operating profit (GOP) of INR41m and a GOP margin at 16% (v/s -45% in 2QFY21), supported by a) improved average occupancy (27% in 3QFY21 v/s 15% in 2QFY21) and b) increased traction in the F&B and Banquet segments. Persisting restrictions on workrelated travel would remain a near-term drag on full-blown recovery in Hospitality.

* Financial performance: In 3QFY21, revenue rose 17% YoY, while EBITDA declined 5%, with the EBITDA margin contracting 515bp YoY to 23%. Adjusted PAT was down 67% YoY in 3QFY21 (v/s our expectation of INR232m).

Key management commentary highlights

* New launches contributed 33% to presales in 3QFY21. Brigade Citadel, Hyderabad (launched in Nov’20), saw a strong response with 0.45msf presales bookings (75% of launched area of 0.6msf).

* The management remains positive on the outlook for Office demand; progress on the Brigade Twin Towers construction remains well on track and is expected to be completed over the next ~two years (capex outlay of ~INR6b).

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