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Capex to drive revenue..

Prestige Estates Projects Ltd. (PEPL) is India's leading real estate developer in terms of booking value. Its expansion is driven by a diverse portfolio spanning tier 1 and tier 2 cities, with a strategic focus on Mumbai and Hyderabad for robust growth.

* In Q1FY25, Prestige reported a 23% YoY decline in pre-sales due to muted launches (1.9msf) and minimal inventory.

* Area sold in the quarter dipped to 2.9msf (-25% YoY), with an average realization of Rs. 11,934, marking a 16% YoY increase.

* PEPL’s marked a revenue growth of 11% YoY; however, the Adj. PAT margin contracted by ~300bbps YoY.

* Though Q1FY25 witnessed a decline in pre-sales, PEPL outlines a strong trajectory for presales, supported by robust launches in Bangalore, Delhi, and Mumbai in the latter half of the year.

* Prestige is on a stable footing in the residential segment with a strong pipeline along with aggressive expansion in annuity assets. Further considering the upgrade in earnings, we revise our rating on the stock to Accumulate with an updated target price of Rs. 1,822, based on 4.9x FY26E adj. book value.

Strong launches in latter half

In Q1FY25, PEPL clocked a pre-sale of Rs.3,030cr (-23% YoY), aided by 2 launches of 1.86msf. The total area sold declined by 25% YoY to 2.86msf, despite that realisation showing a growth of 16% YoY in apartments and villas and 46% in plotted development. The decline in pre-sales is attributed to delayed approvals on launches due to elections. However, the company maintains the presales guidance of 25% growth in the year, supported by the strong launches in the second half of the year.

Revenue Recognition to improve...

PEPL recognized Revenue grew by 11% YoY; however, it marked a decline of 14% QoQ. Additionally, the company reported Rs. 87cr as markto-market gain of Nexus REIT units in the quarter. Consequently, the company's EBITDA margin improved by 300bps YOY to 43%. We expect the margins to normalize in the coming quarters and revenue recognition to improve on the back of higher completions.

Capex to drive annuity revenue

Prestige plans aggressive expansion in its annuity segments, with promising cash flows ahead. Additionally, the company has a planned capex of ~15,000cr to ~16,000cr on commercials, retail, and hospitality in the coming years. Even though management expects the debt-to-equity ratio to improve in the next 6 quarters, supported by free cash flows from the upcoming launches in the residential segment despite the substantial capex in the coming years.

Valuation

Despite a moderate quarter, we remain optimistic on PEPL considering the strong launches in the coming quarters, steady demand, and exceptional growth anticipated in the rental segments. Therefore, we upgrade our rating on stock to Accumulate based on 4.9x FY26E Adj. book value with a revised target price of Rs. 1,822.

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