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Aggressive growth plans across segments

We attended Prestige Estates Projects (PEPL)’s analyst meet held on 21st Feb’23 where the management highlighted its aggressive growth plans across segments: 1) the company aspires to double its annual residential sales bookings to Rs250bn by FY26E from ~Rs120bn in FY23E led by expansion in Mumbai, NCR and Pune markets, 2) incremental rental income of Rs25.5bn from offices/malls by FY28E which would require Rs159bn of capex, 3) company plans to utilise 40% of its annual residential operating surplus to fund capex and expects peak net debt to rise to Rs110-120bn by FY28E vs. Rs47bn as of Mar’23E. In our view, while the company’s aspirations to grow its residential and annuity business is laudable, the company’s ability to achieve significant pre-leasing in ongoing/upcoming annuity assets (particularly in Mumbai) along with strata sales will be the key monitorable going forward in order to keep overall debt levels in check. We retain our BUY rating with an unchanged Mar’23 NAV based target price of Rs530/share. Key risks residential demand slowdown and weak leasing in annuity projects

* Targeting to double annual sales bookings to Rs250bn over FY23-26E: The company has achieved 9MFY23 gross sales bookings of Rs90.4bn on the back of 11.2msf of new launches across residential and commercial sale projects. The company is targeting to exceed its gross sales bookings of over ~Rs120bn in FY23 (Rs10bn achieved in Jan’23). Given the strong business development pipeline and company’s plans to cumulatively launch 94msf of projects over FY23-25E (32msf in FY23E, 32msf in FY24E and 30msf in FY25E), the company aspires to double annual residential sales bookings over FY23-26E to Rs250bn annually with Mumbai market sales targeted to grow to Rs50bn in FY26E (gross GDV of current Mumbai projects is Rs748bn as per company) and new markets of NCR and Pune to grow to Rs30bn and Rs15bn annually, respectively.

* Incremental capex of Rs180bn over Q4FY23-FY28 is key monitorable: As per enhanced disclosures provided by the company, as of Dec’22, pending gross capex across office/malls and hotels is Rs206bn of which Rs180bn is pending and will be spent over Q4FY23-FY28. Against the balance gross capex of Rs159bn for offices and malls, the company estimates incremental rental income of Rs25.5bn by FY28 from over 30msf of incremental leasable area becoming operational.

* Balance sheet debt management to go hand in hand with growth aspirations: As per company, they are cognisant of the large capital requirement to fund capex projects and the company intends to utilise 40% of annual residential operating surplus towards capex, with peak net debt expected to rise to Rs110-120bn in FY27- 28E from Rs47bn as of Mar’23E (co estimates net D/E of 0.5-0.6x between FY23- 28E). In our view, the company’s ability to achieve significant pre-leasing in ongoing/upcoming annuity assets along with strata sales will be the key monitorable going forward in order to keep overall debt levels in check.

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