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Festive fervour kicks in

Along expected lines, Prestige Estates Projects (PEPL) has seen Q2FY22 gross residential bookings rising 88% YoY in value terms to Rs21.1bn (Isec estimate of Rs20bn) on the back of Rs8.5bn of sales from the Great Acres plotted development in the Prestige City, Bengaluru project. With a strong pipeline of launches of 10msf in H2FY22, this momentum in residential sales is expected to sustain heading into the festive season. The company has recently launched its first project at Byculla in Mumbai and is gearing up to launch two more projects in Mumbai in H2FY22 spread across 6msf and the success of these launches is key to the company achieving its vision of Rs100bn of annual sales bookings by FY24- 25E. We revise our target price to Rs469/share (earlier Rs445) incorporating new capex projects but maintain our REDUCE Rating. Key upside risks to our call are faster rise in residential prices and strong leasing for upcoming annuity projects.

* Strong residential sales on back of plotted development launch: PEPL has reported gross sales bookings of 3.5msf worth Rs21.1bn in Q2FY22 vs. our estimate of Rs20bn (up 100% YoY in volume terms and 88% YoY in value terms) at an average realisation of Rs5,966/psf. Sales for Q2FY22 were largely driven by the launch of plots under the name of “The Great Acres” at The Prestige City in Sarjapur, Bengaluru where the company was able to sell over 800 plots spread over 1.7msf at Rs5,000/psf or a sale value of Rs8.5bn in Sep’21. The only dampener was PEPL’s consolidated net debt levels rising by Rs9.2bn QoQ to Rs30.9bn owing to Rs10bn of business development spend. However, the company’s net debt levels may remain flat in H2FY22 as balance monies of Rs14bn from the completion of second phase of annuity asset sale to Blackstone and residual proceeds from Phase 1 of the transaction are expected to be received by Dec’21.

* Robust residential launch pipeline for H2FY22: As per PEPL management, there is a large pipeline of residential launches of 10msf lined up in H2FY22 across South India, Noida (NCR) and Mumbai (Jasdan Classic, Byculla and Cosmos, Mulund projects). As per the company, of the three Mumbai launches spread over 6msf that were lined up for launch in H2FY22, the Jasdan Classic project at Byculla in Central Mumbai has been launched in Oct’21 with final leg of approvals on for the other projects. As per company, the initial response to the Byculla project launch has been encouraging. With the launch of the new Mumbai and Noida projects, the company is targeting gross sales bookings of Rs70-80bn in FY22E and has a medium-term target of reaching Rs100bn of gross sales bookings by FY24-25E.

* Fresh round of capex initiated across South India and Mumbai: The company has given guidance for an annual exit rental income of Rs3.5bn by Mar’22 and is embarking on a fresh round of capex with incremental committed capex of Rs35-40bn over FY22-25E of which 7msf is in Mumbai with the balance largely in Bengaluru and other markets in South India.

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