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Promising outlook...better results across the board

Promising outlook...better results across the board The Brigade Group is one of India’s leading property developers, with over three and a half decades of expertise. The company has developed many landmark buildings and transformed the skylines of cities across South India. Since its inception, Brigade has completed 250+ buildings, amounting to over 76 million sq. ft. of developed space across a diverse real estate portfolio.

• Pre-sales grew by 25% YoY to ~4 msf with a value of Rs. 2,619 cr (+31% YoY) for 9MFY23. We expect the momentum to continue, aided by a healthy pipeline.

• The average realization has grown at 6% CAGR for the last 3 years. The current realization is Rs. 6,599/sqft, but dropped 1.2% QoQ due to plotted development pre-sales. The realization is expected to impact the next few quarters.

• Robust leasing segment with 7.2msf (+19% YoY) of leased space. Active pipeline of ~1.4 msf. At full occupancy, the annual exit rental for current lease assets will be ~Rs. 800 cr.

• Hospitality revenue increased 61% YoY to Rs. 101 cr for Q3FY23. EBITDA increased to Rs. 21.1 cr (+17.9% YoY). In Q3 FY23, Average Revenue per Room (ARR) increased by 58% YoY, while occupancy increased by 14%.

• We have a positive view on Brigade on the back of a robust residential pipeline (9msf), Healthy cash flows, and the revived hospitality segment. But a rising mortgage rate for a longer period can be a headwind.

• Hence, we assign Accumulate rating to the stock with a target price of Rs. 537 based on SOTP valuation.

Robust residential pipeline

Brigade clocked a pre-sale of Rs.2,618.5 cr in 9MFY23, up 31% YoY. Area sold increased to 3.96 msf from 3.16msf in 9MFY22, and collection increased to Rs. 2,833 cr. (+34% YoY) during the same period. The company has 17.8msf of ongoing and 9msf of upcoming projects, which are expected to drive the sales momentum and have the potential to generate free cash flow of ~Rs.3,000 cr. We expect a moderation in the sales volume and realization on account of increases in residential prices over the next few quarters.

Steady cashflow backed by increased annuity

The lease income is expected to reach Rs.1,100 cr. (Rs.560cr in 9MFY23) by FY25. The lease area under operation will increase from 7.18 to 10 msf over the same period. The major lease assets are located in Bengaluru and Chennai. The flagship projects, Brigade Tech Gardens (3 msf) and World Trade Center Chennai (2.01 msf), have begun operations, and the same is expected to be fully leased in the next few quarters. The ongoing project Brigade Twin Towers (1.3 msf) is expected to commence operation in FY25.

Hospitality...encouraging growth

Hospitality assets showed an impressive revival post COVID. The improvement in sales and margins. EBITDA increased by 252% to Rs. 78.8 cr during 9MFY23 from Rs. 22.4 cr in 9MFY22, but was down by 26% QoQ. ARR showcased a growth of 58% YoY (+8% QoQ) to Rs. 6,081. Occupancy remains flat at 68% QoQ (+14% YoY), compared to 59% in Q1FY20 (pre-COVID).

Valuation

Given a healthy launch pipeline, recovery in hospitality assets, and strong operating cashflows, we have a positive outlook on the stock. But the increased interest rate may tamper with the customer’s sentiment. Hence, we assign Accumulate rating to the stock with a target price of Rs. 537 based on SOTP valuation.

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