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Switch to PEPL from OBER/DLFU to capture growth

Our view

Prestige Estates Projects (PEPL) has achieved the presales of Rs210bn for FY24 and guided Rs260-270bn presales for FY25 on the back of a strong launch pipeline of Rs600bn GDV and Rs120bn ongoing inventory. We valued the residential business at Rs273bn. Company also plans to take its annuity multifold to Rs50bn in next 2-3years, which we valued cumulatively at Rs410bn at 11.7% WACC and 8% Cap rate for office (6.5% for retail). As the company plans to list its hospitality arm, we valued it at Rs146bn at 25x FY27 EV/EBITDA. PEPL clearly stands out amongst peers with the superior growth prospects for residential segment, multifold annuity growth and value creation by listing the hospitality arm. Company has managed its debt well and expected to remain under control at Net D/E of 0.36x FY25. We believe one should choose pro-growth companies like PEPL for 2years over the companies with capped valuation/growth like OBER & DLFU which have limited/no upside remaining. We suggest switching from OBER/DLFU to PEPL to capture an upside of 64% which includes a 35% premium to the current portfolio. We upgrade it to ‘BUY’ with a target price of Rs3,021/share.

Strong growth for residential segment on cards with Rs600bn pipeline

PEPL has surpassed presales bookings of Rs210bn and guided for bookings of Rs260- 270bn for FY25 on the back of a strong pipeline. Company has a project pipeline of GDV worth Rs600bn at various stages of approvals and ongoing inventory of Rs120bn which will allow PEPL to comfortably achieve its target for FY25. Additionally, the company has 888acres of land bank that can be quickly brought to the markets and will help to replenish the pipeline. Meanwhile the company also plans to spend Rs35-40bn for BD each year to keep the growth momentum ongoing. We believe in the residential space PEPL has superior growth prospects compared to the peers.

Office rentals to grow 7x and retail to grow 3x by FY28

PEPL plans to add 31msf of office space by FY29 to the existing portfolio of 9.35msf and take the current annuity to the Rs41.7bn (PEPL Share). Additionally, PEPL to add another 7msf to its current retail portfolio with an annual run rate of Rs9bn. PEPL needs to do the pending capex of ~133bn to commission all the annuity assets. Once PEPL commissions the annuity portfolio it has plans to explore the REIT option. We valued office assets at WACC of 11.7% and Cap rate of 8% to GNAV of Rs345bn while we used 6.5% cap rate for retail assets and arrived at GNAV of Rs65bn.

Hospitality portfolio monetization on cards

PEPL has 5/7star rated 10 operational hotels with 1489keys and plans to take the keys to ~3209keys in the coming 2-3years. In FY24 the hospitality segment clocked revenues of Rs7.9bn with EBITDA margin of 37%. We estimate with all the hotels operational and 80-82% occupancy total portfolio should achieve revenue of ~Rs20bn by FY28 with similar margin profile. As hotels are witnessing strong demand, PEPL plans to demerge the hospitality arm and list it separately. Hence, we have given 25x FY27 EV/EBITDA and valued Hospitality at Rs146bn.

Strong cashflow visibility and lean B/S allows to accelerate growth

PEPL’s planned launches of Rs600bn along with the inventory of Rs120bn gives strong visibility for cashflow. Furthermore, annuity growing multifold coupled with addition of the hotels to generate strong cashflow in coming years. We believe with the strong cashflow visibility, net D/E to remain under control and come down to 0.36x by FY27E

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