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Significant launches to fuel FY26 presales

PEPL has a diverse portfolio with a presence in residential, office, retail, and hospitality segments. The company’s 9MFY25 incremental BD of 15msf and the launch pipeline of INR800b would result in a presales CAGR of 14% over FY24-27E to reach INR315b by FY27E. PEPL is expanding its commercial segment (by 43msf) as well as its hospitality portfolio. Therefore, its commercial rental income is likely to clock a 53% CAGR to reach INR19.5b and its hospitality revenue would post a 20% CAGR to reach INR13.7b over FY24-27E. However, income from the commercial segment is likely to improve to INR33b by FY30E as all the under-construction assets are operationalized. PEPL has quickly started gaining market share in MMR; it now plans to enter and scale up NCR as well as Pune, which will generate an incremental income stream. Therefore, we are extremely confident about PEPL’s growth prospects and reiterate our BUY rating with a revised TP of INR1,725.

Strong pipeline to result in ~1.5x growth in presales

* Presales stood at INR210b in FY24, primarily driven by significant launches (of 40msf), with the residential segment accounting for 80% of the total sales. However, FY25YTD has experienced a dip, with only 12msf of launches, which led to a sharp decline in sales. For 9MFY25, sales declined materially to INR100b compared to INR163b in 9MFY24 due to delays in launch-related approvals.

* However, management has shown confidence in launching projects with an estimated gross development value (GDV) of INR300b spread across various geographies in 4QFY25. Its reiterated FY25 guidance implies a jump of ~14% YoY in presales. However, we believe due to possible delays, FY25 presales will decline 4% YoY.

* These strategic launches will span key metropolitan regions, reinforcing the company's presence across India's high-growth real estate markets. The projects include Southern Star in Bengaluru - INR36b GDV, Indirapuram in NCR - INR115b GDV, Pallava Gardens in Chennai - INR31b GDV, Spring Heights in Hyderabad - INR32b GDV, and Nautilus in Mumbai - INR87b GDV. While all these projects are slated for Q4FY25, some may spill over to the next fiscal year due to regulatory roadblocks.

* The introduction of these large-scale developments, along with the ongoing inventory of INR136b, is expected to significantly boost PEPL's sales performance, with an estimated additional revenue generation of ~INR100b in 4QFY25 alone. This surge in sales will contribute to total projected sales of INR201b for FY25, reinforcing the company's strong market position.

* Beyond its upcoming launches, PEPL has built a robust project pipeline of ~INR500b, currently at various stages of planning and approval. This extensive pipeline is set to drive long-term growth, enabling the company to achieve INR315b in presales by FY27, translating into a 14% CAGR (1.5x growth from FY24 levels).

* By strategically expanding its portfolio across high-demand regions and maintaining a steady pipeline of future projects, PEPL aims to capitalize on emerging market opportunities, strengthen its revenue base, and sustain its leadership in India's real estate sector. The company's proactive approach to project execution and market demand assessment positions it for sustained growth and enhanced shareholder value in the coming years.

Commercial portfolio on track for rental scale-up at 64% CAGR

* PEPL reported a robust 90% occupancy rate across its commercial portfolio for 9MFY25. Exit rentals for this period were INR5.3b, reflecting strong demand and stability in the company's rental income streams.

* In 3QFY25, PEPL added two more office assets to its portfolio. The first is a new tower in Bengaluru, the Prestige Signature Tower (JRC), with a leasable area of 0.28msf. The second asset is on Kensington Road in Bengaluru, with a leasable area of 0.08msf. In both of these properties, PEPL holds 100% ownership, reinforcing its control over its assets and rental revenue.

* With these new additions, PEPL's office portfolio has expanded to 19 assets that are in various stages of development, including both ongoing and upcoming projects. Collectively, these assets represent a substantial 31 msf of potential leasable area, reinforcing the company’s strong position in the commercial real estate sector.

* This growing pipeline is expected to be a key driver of PEPL’s office rental income, which is projected to reach INR12.7b by FY27, reflecting a robust CAGR of 64% over FY24-FY27. This sharp growth highlights the company’s ability to capitalize on increasing demand for high-quality office spaces in prime locations.

* Moreover, as under-construction assets are completed and reach optimal occupancy levels, PEPL’s rental income is expected to accelerate further. At full operational capacity, office rentals are estimated to reach INR25b, representing an 8x increase from the FY24 exit rental levels. This strong growth trajectory underscores the company's potential to become a leading player in India’s commercial real estate market, benefiting from rising office space demand, strategic project locations, and favorable market conditions.

Retail portfolio to deliver 3x rentals by FY27

* As of 9MFY25, the company’s retail portfolio consists of 13 completed malls, with a total area of 10msf. Additionally, there are 12 ongoing and upcoming malls in the pipeline, which will add another 12msf to the portfolio once completed. Notably, in 3QFY25, the company added a new mall in Bengaluru with a significant area of 1.27msf. The company owns a 76% stake in this new mall, which is expected to be launched in FY28. This continued expansion strengthens the company’s position in the growing retail space, allowing it to cater to rising consumer demand.

* The company’s retail assets are performing well, with a high occupancy rate across the portfolio. As of 3QFY25, 99% of the malls in the portfolio were leased, demonstrating the strong demand for the company’s retail spaces. The exit rentals for the quarter were reported at INR2.2b showcasing the solid rental income generated from its retail assets.

* Going forward, PEPL anticipates sustained growth in its retail portfolio, both through physical expansion and rental income. The company’s strategic pipeline of upcoming malls is expected to achieve ~80% occupancy by FY27, playing a crucial role in driving rental revenue growth.

* As occupancy levels rise, rental income from these assets is projected to reach ~INR6.8b by FY27, reflecting a 3x increase compared to FY24 levels. This substantial growth underscores the company’s ability to capitalize on increasing demand for high-quality retail spaces in key urban centers.

* Furthermore, as all under-construction retail projects are completed and integrated into PEPL’s operational portfolio, rental income is projected to reach INR8.8b by FY30. This long-term growth trajectory highlights the strong potential of PEPL’s retail segment, which is set to become a major revenue contributor in the coming years. With strategic asset expansion, improving occupancy rates, and rising consumer footfall in its retail properties, PEPL is well-positioned to establish itself as a leading player in the retail real estate market.

Hospitality portfolio to expand to 4,760 keys

* The hospitality portfolio currently comprises eight operating hotels, four hotels under development, and eleven hotels scheduled for launch shortly.

* Of the above, PEPL added two new hotels in 3QFY25 in Mumbai and Hyderabad, with a total of 258 keys. In the near term, PEPL’s hotel pipeline is likely to expand to 4,760 keys.

* Out of 4,760 keys in the near term, we have considered ~3,000 keys for estimates and expect PEPL to generate a revenue of INR13.7b in FY27, indicating a ~20% CAGR over FY24-27. We also expect PEPL to achieve ~35% operating margin, indicating ~INR4.8b EBITDA.

* The incremental 1,760 keys will further take the revenue northward once operationalized.

Net debt to peak in FY27; revenue to post 21% CAGR

* PEPL’s share of collections is anticipated to increase to INR220b in FY27, implying a 26% CAGR over FY24-27E.

* With projects ramping up and collections improving, revenue is estimated to post a 21% CAGR to reach INR141b, EBITDA to clock a 10% CAGR to reach INR33b, and PAT to record a 12% CAGR to reach INR9.9b over FY24-27E.

* Net debt is expected to peak at INR111b in FY27 as PEPL is in the process of developing 43msf of commercial assets and 15 hospitality assets. PEPL to generate a cumulative OCF of INR185b over FY25-27E.

* We estimate INR50b to be invested annually in land acquisition and ~INR31b in capex, leading to a shortfall of cash (at INR10.8b) in FY27.

* Debt will eventually reduce as rental income starts increasing with the commissioning of commercial assets at optimal occupancy.

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