scorecardresearchPrestige Estates Projects: After a 27% fall from its record high; brokerages
After falling 27 percent from its record high of  <span class='webrupee'>₹</span>553, hot on January 18, 2022, brokerages now see realty stock Prestige Estates Projects almost doubling its investor wealth in the next 1 year.

Prestige Estates Projects: After a 27% fall from its record high; brokerages now see up to 98% upside in this realty co

Updated: 24 Feb 2023, 02:28 PM IST
TL;DR.

After falling 27 percent from its record high of 553, hot on January 18, 2022, brokerages now see realty stock Prestige Estates Projects almost doubling its investor wealth in the next 1 year.

After falling 27 percent from its record high of 553, hit on January 18, 2022, brokerages now see realty stock Prestige Estates Projects almost doubling its investor wealth in the next 1 year.

Domestic brokerage house Dolat Analysis and Research (DART) has a buy call on the stock with a target price of 800, indicating an upside of over 98 percent from its current market price (CMP) of 403, as on February 23, 2022.

Another brokerage, Motilal Oswal also has a buy recommendation on the stock with a target price of 675, implying a potential upside of over 67 percent.

HDFC Securities, ICICI Securities and Jefferies have also retained their bullish outlook on the stock with an upside between 31-56 percent.

The Realty sector has been moderating in recent times on the back of a rising interest rate cycle and a decline in consumer demand. The Nifty Realty index has fallen nearly 14 percent in the last 1 year and 10 percent just in 2023 YTD. The index has lost nearly 7 percent in Feb so far after a 4.5 and 4 percent decline in January and December, respectively.

Prestige has also been following a similar trend. The stock has lost 10 percent in the last 1 year and around 12 percent in 2023 YTD. In Feb so far, the stock has shed over 3 percent after a 9.5 percent loss in January.

The bullish stance by brokerages comes after the firm announced earlier this week that intends to almost double its overall residential sales by the financial year 2026 to 20,500 crore versus 12,250 crore currently.

The management also said that it aims to multiply its lease income by 7x in the next five years and double its hotel business to 1,800 crore by 2027. Over the current financial year to 2027, the existing residential pipeline is likely to deliver free cash flow worth 20,000 crore. The company plans on utilising 40 percent of that free cash flow to fund the lease and hotel capex. Another 2,500 crore to 3,000 crore is to be spent annually on new project additions.

Prestige stock price trend
Prestige stock price trend

Brokerage views

Brokerage house DART, which sees a 98 percent upside in the stock, stated that the FY26 presales target set at 25,000 crore will be aided by new micro market addition in existing cities along with expansion into new cities. It is confident of achieving healthy occupancy within 1 year of following the completion of office assets across markets, added DART.

The brokerage pointed out that the developer has established a strong presence in Mumbai with 16 msf (carpet area) of ongoing and planned developments spread across 8 projects. As per company projections, the GDV for the Mumbai business is estimated at 75000 crore. Notably, the developer does not plan on adding more commercial projects in the Mumbai market. However, is looking to add 4 new residential projects in the MMR region and sees an average ticket size of 2.0-2.5 crore as its target segment/product, explained DART.

It also believes that the company's industry-leading execution aids capital discipline. "The developer has delivered 8 0msf in the last 6 years; executing at an annual run-rate of 14 msf despite covid related dislocation. The developer plans on funding the planned capex of 17000 crore for the annuity build-out

through a combination of residential free cash flow (FCF) and additional debt. Access to AIF funds and potential strata sales in office portfolio offers additional levers for sustaining net gearing within projected peak levels of 0.64x," it further pointed out.

The brokerage expects the developer offers a unique combination of scale, diversity and dominance. At CMP, it estimates the residential business coming for free basis scale of annuity portfolio build-out (FY24E EV of 30000 crore on company rental/revenue projections) and peak net debt of 12,000 crore. A shift away from a disciplined capital allocation strategy is a key risk, it added.

Motilal Oswal: MOSL highlighted that the company expects to spend 2,500-3,000 crore annually on new project additions in order to achieve its pre-sales target of 25,000 crore. Prestige Estates Projects has 2,000 crore of capital from the HDFC platform, which will be utilized for investment requirements over the next 12 months. It is also in talks with Kotak to set up a similar fund, Motilal Oswal pointed out.

"It is also important to note that (1) 20,000 crore in surplus cash highlighted earlier is only from the residential segment and does not include any income from its operational annuity and PMS segments; (2) this surplus cash will be generated only from the current pipeline and as new bookings scale up, the incremental inflows will further enhance the company’s internal accruals. We believe that Prestige Estates Projects’ net debt could peak at 6,000-8,000 crore," said Motilal Oswal.

However, the brokerage said that it is not concerned about the stress on Prestige Estates Projects’ balance sheet as the company's residential segment further scales up, the cash flow generation will be sufficient to take care of business development spending and commercial Capex requirements without straining the balance sheet.

MOSL also mentioned that the current valuation of the stock does not fully factor in the increase in the company's rental income.

"Once the commercial portfolio fully stabilizes over the next five to six years, it will generate rental income of 3,200 crore, which is right now not fully implied in the current valuation," it said.

Jefferies: Jefferies said that the company's expansion into a tough but promising market of Mumbai is gaining pace. "We believe that Prestige's excellent execution track record, including in different geographies, should help it tide over the challenges as it enters a new asset creation cycle," the note said. "We also believe that the market under-appreciates the quality of its residential business."

The brokerage has a buy rating on the stock with a price target of 550, implying an upside of 36 percent.

Meanwhile, HDFC Securities has a buy call and target price of 630 for the stock, indicating an upside of 56 percent on the stock on the back of strong visibility on launches as well as rental ramp-up.

ICICI Securities also have a buy call with a target price of 530, indicating an upside of 31 percent.

In the December quarter, the company reported strong growth in revenue and net profit. Its net profit surged 47.5 percent to 127.8 crore versus 86.6 crore same period last year. Meanwhile, its revenue from operations in Q3 jumped 74.5 percent to 2,317 crore, a significant increase from the 1327.5 crore a year ago. Operating margin, however, came in at 24.78 percent in the reporting quarter as against 27.46 percent last year.

The company’s sales guidance for FY23 is of 12,000 crore. In FY22, the company did sales of worth 10,400 crore. The company’s consolidated revenue from operations in the nine months ending December 2022 stood at 5,683.2 crore.

REIT offer exposure to real estate market without a lot of the hassles that usually come with it.&nbsp;
REIT offer exposure to real estate market without a lot of the hassles that usually come with it. 
First Published: 24 Feb 2023, 02:28 PM IST