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Balancing growth with prudence

Prestige Estates (PEPL) reported steady numbers in the residential business backed by new launches (2.49msf in 3QFY23 of for-sale projects) and showed sustained traction across Bangalore and MMR regions. Booking value stood at INR 25.19bn (down 41% YoY; down 28% QoQ on a very high base; broadly in line with target of over INR 120bn worth of bookings; INR 90.24bn in 9MFY23). On the annuity front, PEPL targets INR 30bn of annuity income by FY28 (INR 5bn in retail + INR 25bn in commercial) with INR 145-150bn of capex. Net debt was stable QoQ at INR 41.7bn (+31% YoY; +3% QoQ; 0.42x net debt to equity) and remains under check for now. We continue to like PEPL‘s aggressive growth across residential and commercial segments coupled with its superior execution track record. PEPL continues to exhibit growth along with financial prudence. We maintain a BUY rating and a Sep’23 TP of INR 620 (implying 52% upside). Key risks: annuity cash flows remain backended; and inability to execute across MMR region.

* Residential sales tracking well across regions: Booking value came in at INR 25.19bn (down 41% YoY; down 28% QoQ on a very high base; PEPL share – INR 21.50bn) as volume stood at 2.91msf (down 48% YoY; down 36% QoQ on a very high base; PEPL share – 2.32msf) with an average realisation of INR 9,371psf (for Apartments / Villas/ Commercial Sales) and INR 4,148psf (for plot sales). Collection came in at INR 22.93bn (down 6% YoY; down 12% QoQ; PEPL share – INR 19.98bn). Sales was led by Bangalore (INR 13.78bn) and MMR (INR 4.91bn), and the balance came from other geographies. In 9MFY23, Mumbai region sales stood at INR 16.62bn while Bangalore was at INR 60.08bn. (Bangalore: INR 80-85bn + MMR: INR 25-30bn target for FY23 and balance from other cities including Delhi NCR and Hyderabad). PEPL has achieved 21.1msf of launches in 9MFY23 (including 9.93msf of capex projects; 16.8msf in FY22).

* Bangalore and Hyderabad launches to drive sales: In the near term, PEPL targets to launch multiple projects in Bangalore including Park Grove (8.99msf of developable area), Lavender Fields (3.12msf) and Serenity Shores (1.53msf). In Hyderabad it plans to launch Prestige City (12.6msf) and Rock Cliff (0.71msf) while Clairmont (3.26msf) has already been launched. In MMR, Ocean Towers (1.68msf) and Nautilus (0.9msf) are FY24 launches while Jijamata Nagar is expected in FY25. In BKC, the piling work for BKC X and BKC 101 (5.8msf) has started along with that of the redevelopment tower.

* Targets INR 30bn of annuity rentals by FY28E: PEPL targets to have INR 13bn of annuity income (INR 8.9bn commercial + INR 4.1bn retail; INR 4.6bn rental potential as of FY23) by FY26 and further scale it up to INR 30bn by FY28 (led by completions in BKC and Worli); capex spend of INR 145-150bn (Commercial: INR 128bn + Retail: INR 16.1bn) would be needed (PEPL share). Net debt levels for the capex spend will remain a key monitorable and pre-leasing (especially MMR) will help provide cash flow visibility.

* Maintain ‘BUY’; Sep’23TP of INR 620: Key triggers in the stock include scale-up in residential, gradual completion of the annuity portfolio, and further project acquisitions. We maintain a ‘BUY’ rating on PEPL with a Sep’23 TP of INR 620 (implying 52% upside).

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