Buy Prestige Estates Projects Ltd For Target Rs.1,920 by Motilal Oswal Financial Services Ltd
Growth outlook remains steady Strong quarter; new launches to drive 2H performance
Prestige Estates (PEPL) reported 20% YoY growth in pre-sales to ~INR72b (8% beat) in 2QFY27, supported by new launches. It launched three projects with a combined GDV of INR42b. Bengaluru remained the largest contributor in presales at 54%, followed by Hyderabad at 15%, MMR at 12% and Chennai at 11%. Major project contributors to 2Q pre-sales were Evergreen @Prestige Raintree park, Bengaluru (INR10.3b), Parklane, Bengaluru (INR9.6b), Garden Breeze @TPC Sarjapur, Bengaluru (INR7.9b), Golden Grove, Hyderabad (INR7.1b), Pallavaram Gardens, Chennai (INR4.5b). In 2Q, BD comprised one project in Gurugram offering ~INR56b GDV and more additions are expected, which would enhance the growth visibility. It has a launch pipeline of INR466b in 2H and remains confident of achieving 15-20% pre-sales growth in FY27. We bake in a 14% CAGR in pre-sales to ~INR388b over FY26-28.
Healthy collections generate strong NOCF
Collections in 2Q grew strongly by 26% YoY to INR53b. NOCF grew 81% YoY to INR26.8b. Despite the rapid expansion, the increase in net debt was limited to INR2.1b QoQ to INR121b (net debt-to-equity at 0.70x). On the back of healthy pre-sales growth and progress in execution, we expect ~16% CAGR in collections to ~INR251b over FY26-28, which would enable growth while keeping leverage in check.
Financial performance
* In 2QFY27, revenue stood at INR20.6b, down 15% YoY. EBITDA stood at INR9.3b, flat YoY (in line), with margins at a record high of 45.0%. PAT stood at INR2.4b, down 48% YoY.
Valuation and view
* PEPL remains well on track to scale up the residential segment on the back of regional diversification as well as continued BD and launches. Recent business development deals continue to replenish the inventory pipeline, thus improving growth visibility over the medium term.
* Ramp-up in the annuity portfolio is progressing well, and upcoming assets are likely to significantly increase the annuity income over the medium term.
* Given the continued BD, we now value the residential business at 25% premium to the NAV to factor in the growth beyond the existing inventory pipeline. Further, the land bank value is calculated on 1.7x FSI. We have increased the WACC rate to 12% for the residential business and cap rate of annuity assets to 8.0-8.5% for completed, ongoing and upcoming assets.
* We have a BUY rating with a revised TP of INR1,920, indicating 18% upside potential.
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