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Strong launch pipeline ahead…

About the stock: Brigade Enterprises (BEL) is one of the leading property developers in South India. Its offerings include Grade-A commercial property, affordable to ultra-premium housing in real estate business and operational marquee hotel assets in hospitality segment.

Q4FY22 Results: BEL’s performance was a mixed bag. Residential sales value was flattish YoY amid high base while other segment such as leasing recovered strongly

* Sales value at | 1028 crore was up 1% YoY. Realisations were up ~8.4% YoY at | 6644/sq ft (led by project mix). The company reported sales volume of 1.5 mn sq ft, reporting decline of ~8% YoY, on a high base (56% growth in the base). On financial reported numbers, reported revenues grew ~19.1% YoY to | 942 crore, with revenue recognition from real estate at | 729 crore, up 13% YoY. Revenues from hospitality (flat YoY) were at | 55.3 crore while rental revenues at | 180.7 crore, up 48.8% YoY, saw strong recovery

* Reported EBITDA margins were down 210 bps YoY to 21.8% mainly on account of higher sub-contractor cost and other expenses. The company reported PAT of | 32.5 crore, down 17.9% YoY, owing to lower EBITDA

What should investors do? BEL’s share price has grown at ~20% CAGR over the past five years (from ~| 167 in May 2017 to ~| 408 levels in May 2022).

* We maintain our BUY rating on the company. Apart from robust residential sales volumes traction (led by strong end user demand in its key markets), we expect a recovery in commercial to drive overall traction

Target Price and Valuation: We value BEL at | 550/share.

Key triggers for future price performance:

* Traction in sales momentum in the residential business with strong pipeline of 17.4 mn sq ft ongoing projects and ~8.3 mn sq ft upcoming projects

* Stable cash flows in office leasing portfolio with traction in leasing picking up now; normalised malls operation to add incremental growth

* Hospitality portfolio recovery led by reopening of economy

Alternate Stock Idea: Besides BEL, we like Mahindra Lifespace in real estate space.

* A play on residential expanding real estate portfolio

* BUY with a target price of | 430

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