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Expanding into newer markets

*  In 9MFY24, pre-sales jumped 44% YoY to INR37.7b (90% of FY23 presales). This growth was driven by strong sustained sales, with new launches contributing 50% to the overall pre-sales value in 3QFY24 and 44% in 9MFY24.

*  Despite moderation in new launches in 4Q, BRGD is on track to deliver INR53b in pre-sales for FY24, up 28% YoY. This translates into a CAGR of 24% in bookings over FY21-24.

*  While Bengaluru has been the focal point of the strong performance, BRGD has significantly expanded its footprint in Chennai and Hyderabad. Of the 16 msf acquired since FY23, 13 msf were into these two markets.

*  Overall, the company has INR190b worth of project pipeline in Chennai and Hyderabad and is planning to launch INR60b (5msf) worth of projects in these markets over the next 12 months (including the Kokapet and Mount road projects).

*  On the back of planned launches of 11msf over the next four quarters and a strong overall project pipeline of over 43msf, we expect BEL’s bookings to rise to INR84b by FY26, implying a CAGR of 26% over FY24-26E with INR25-30b stemming from these two new markets.

Commercial: Unveils the next leg of growth

*  Brigade owns ~7msf of office assets across Bengaluru and Chennai and despite concerns around SEZ space, the company has improved the occupancy of its commercial portfolio to 93% in 3QFY24 from 85% in 4QFY23.

*  It is expected to be fully leased over the next two quarters and can generate INR10b of rentals (BRGD’s share – INR8b) and EBITDA of INR5.5b.

*  Brigade Twin towers (1.3msf) is expected to be delivered by Mar’25 and has the potential to generate an additional rental income of INR1-1.2b.

*  The company now plans to further expand its portfolio by 5.2msf across office and retail projects with a cumulative rental potential of INR5b. This includes 2.2msf development in Bengaluru (Brigade Padmini and Utopia), 1.6msf in Hyderabad (Brigade Kokapet), and 1.4msf in Chennai.

Building hotels across all major mixed-use projects

*  The current portfolio of ~1,500 keys achieved a 73% occupancy in 3Q. The hotels have experienced an ARR growth of ~60% to INR6,500 from INR4,000 in FY22.

*  The company is on track to generate INR1.5b EBITDA in FY24 and we expect it to register a CAGR of 8% over FY24-26E, aided by steady growth in occupancy and ARR.

*  Given the tailwinds in the segment, the management aims to expand the portfolio by adding ~1,000 keys across five assets – 2 in Bengaluru and 1 each in Hyderabad, Chennai, and Mysore.

Comfortably placed to fund the capex

*  The company’s collections are expected to increase to INR94b from INR62b over FY24 to FY26, leading to an increase in OCF (post interest) from INR11b to INR32b during the same period. We expect it to spend INR10b annually towards BD in the residential segment.

*  The expansion plan unveiled across office, retail, and hospitality segments will require a capex outlay of INR30b. It has a healthy balance sheet with a net debt of INR21b (net D/E 0.7x), providing sufficient headroom for leverage.

*  The proposed fund raise of INR15b (mix of debt and equity), coupled with the healthy surplus cash post BD investments, implies that the company is comfortably placed in terms of funding the expansion.

Valuation and view

*  BRGD has honed the ability to consistently scale up the business across all segments. It is now gearing up for the next leg of growth in the residential segment by entering new cities and is also planning to significantly expand its annuity portfolio.

*  The company continues to provide strong visibility in the near term, supported by the progress made in BD over the last few years. At the CMP, the company is trading at an EV of INR235b. Excluding the value of operational annuity portfolio, the implied value of the residential business stands at INR120b. The NAV of the current residential pipeline is INR75b, implying a premium of 60%.

*  Additionally, the proposed development of 5msf office/retail along with 1,000 keys can be valued at INR30-35b; however, this is not currently reflected in the company’s valuation. Hence, we maintain our Buy rating with an unchanged TP of INR1,250, implying an upside of 31%.

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