April 24, 2023
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PRESTIGE ESTATES PROJECTS Stock Research Report by ICICI Securities
Sector: Construction – Residential & Commercial Complexes
CMP Rs. 458, Target Rs. 530 (16% upside potential)
Target Period: 12 Months
PRESTIGE ESTATES PROJECTS Stock Research Report: Record year, new launches key to achieving growth ambitions
Prestige Estates Projects (PEPL) clocked record FY23 gross sales bookings of Rs129bn (up 25% YoY) and gross collections of Rs98bn (up 31% YoY) led by new residential launches of 16.5msf with the Mumbai market contributing Rs27bn or 21% of FY23 gross sales bookings. With a residential launch pipeline of 65msf over FY24-25E, the company aspires to 1) double its annual residential sales bookings to Rs250bn by FY26E from ~Rs129bn in FY23 led by expansion in Mumbai, NCR and Pune markets, 2) incremental rental income of Rs25.5bn from offices/malls by FY28E which would require Rs159bn of capex, 3) company plans to utilise 40% of its annual residential operating surplus to fund capex and expects peak net debt to rise to Rs110-120bn by FY28E vs. Rs47bn as of Mar’23E. In our view, while the company’s aspirations to grow its residential and annuity business is laudable, the company’s ability to achieve significant pre-leasing in ongoing/upcoming annuity assets along with strata sales will be the key monitorable in order to keep overall debt levels in check. We retain our BUY rating with an unchanged Mar’23 NAV based target price of Rs530/share. Key risks are a residential demand slowdown and weak leasing in annuity projects.
● Targeting to double annual sales bookings to Rs250bn over FY23-26E: The company has achieved FY23 gross sales bookings of Rs129bn on the back of 16.5msf of new residential launches. Given the strong business development pipeline and company’s plans to cumulatively launch 65msf of residential projects over FY24- 25E (32msf in FY24E and 30msf in FY25E), the company aspires to double annual residential sales bookings over FY23-26E to Rs250bn annually with Mumbai market sales targeted to grow to Rs50bn in FY26E (gross GDV of current Mumbai projects is Rs748bn as per company) and new markets of NCR and Pune to grow to Rs30bn and Rs15bn annually, respectively.
● Incremental capex of Rs180bn over Q4FY23-FY28 is key monitorable: As per enhanced disclosures provided by the company, as of Dec’22, pending gross capex across office/malls and hotels is Rs206bn of which Rs180bn is pending and will be spent over Q4FY23-FY28. Against the balance gross capex of Rs159bn for offices and malls, the company estimates incremental rental income of Rs25.5bn by FY28 from over 30msf of incremental leasable area becoming operational.
● Balance sheet debt management to go hand in hand with growth aspirations: The company is cognisant of the large capital requirement to fund capex projects and intends to utilise 40% of annual residential operating surplus towards capex, with peak net debt expected to rise to Rs110-120bn in FY27 28E from Rs47bn as of Mar’23E (co estimates net D/E of 0.5-0.6x between FY23-28E). In our view, the company’s ability to achieve significant pre-leasing in ongoing/upcoming annuity assets along with strata sales will be the key monitorable going forward.
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