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Subdued pre-sales growth on account of lower launches

* Brigade Enterprise (BEL) reported bookings of INR10.9b in 1QFY25, up 9% YoY (16% below estimate). Sales volume stood at 2.7msf, down 21% YoY.

* Aided by the launch of a premium project in Bengaluru, BEL recorded the highest ever quarterly realization of INR9,440 psf, up 38% YoY.

* Towards the end of 1Q, the company also launched its much awaited luxury project ‘Brigade Icon’ in Chennai. The project’s contribution to total bookings has spilled over to 2QFY25. In FY25, BEL is aiming to launch 12.6msf of projects with a GDV value of ~INR130b across the three markets of Bengaluru, Chennai, and Hyderabad.

* With scale-up in Chennai and Hyderabad, we expect the company to deliver 32% CAGR in pre-sales over FY24-26E to INR105b.

* P&L performance: Revenue increased 65% YoY to INR11b (6% below estimate). EBITDA stood at INR2.9b, up 67% YoY with a margin of 27% (up 40bp YoY). Adj. PAT surged 2x YoY to INR837m, clocking a margin of 8%.

Annuity business reports healthy growth

* Leasing revenue grew 23% YoY to INR2.6b, and the hotel business reported a revenue of INR1.2b, up 12% YoY.

* Over the last four quarters, the company has made healthy progress on the commercial portfolio occupancy, which rose to 97% by 4QFY24 from 86% in 1QFY24. BEL currently has ~2.4msf of office and retail assets underconstruction and aims to launch 1.5msf of commercial projects soon.

* Despite seasonality, the hospitality vertical maintained steady occupancy of 75%, up 800bp YoY/flat QoQ. Hence, while the ARR was flat YoY at INR6,233, the segment’s revenue increased 12% YoY to INR1.2b.

Highlights from the management commentary

* New launches: Launches during the quarter contributed 35% to total presales during 1QFY25. The company maintained its 13msf launch guidance but it will be tilted towards the second half, with 2QFY25 launches to be similar to 1Q.

* Leasing portfolio growth: BEL is currently awaiting OC for the 1.3msf Twin Towers in Bengaluru, and should get it in a couple of quarters. BEL has commenced construction of Brigade Tech Boulevard, Chennai (0.8msf) and Brigade Padmini Tech Valley Block B (0.7msf). Over the next nine months, the company will commence construction on 1.5msf of assets across Bengaluru, Kochi, and the GIFT City.

* Hospitality: Focus was on improving the occupancy during 1QFY25, which resulted into 800bp improvement. Despite sluggishness related to general elections, events like ISL, IPL, and MICE drove occupancy. While ARR was flat YoY, BEL reiterated its 10% ARR growth target for FY25.

Valuation and view

* BEL reported a steady quarter due to limited launches across its core markets. However, it has a strong pipeline of ~13msf which should enable it to sustain the growth traction going ahead.

* Management intends to keep assessing growth opportunities in the residential segment and expects to spend higher on business development over the next two years. This will provide growth visibility in the residential segment and lead to further re-rating. We reiterate our BUY rating with a TP of INR1,525, implying 32% potential upside.

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