CMP: INR162 TP: INR225(+39%) Buy

Transcription

1 10 February 2016 Q3FY16 Results Update Sector: Real Estate BSE SENSEX S&P CNX 23,759 7,216 Bloomberg PEPL IN Equity Shares (m) M.Cap.(INRb)/(USDb) 64.0 / Week Range (INR) 299/166 1, 6, 12 Rel. Per (%) -11/-10/-22 Avg Val, INRm 75.5 Free float (%) 30.0 Financials & Valuations (INR b) Y/E Mar 2016E 2017E 2018E Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr (%) BV/Sh(INR) RoE (%) RoCE (%) Payout (%) P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%) Estimate change TP change Rating change 10-20% 10% CMP: INR162 TP: INR225(+39%) Buy Weakest quarter of recent past; Valuation factors in worst phase of capital structure and operations Weak financials: Consolidated P&L weakened sequentially with revenue at INR9.8b (v/s INR12b QoQ), EBITDA at INR2.3b, 23.3% (v/s INR2.7b QoQ, 22.5%) and PAT at INR636m (v/s INR920m QoQ). Royal gardens and Brooklyn heights crossed revenue threshold in. Exora s consolidation impact is yet to percolate completely in. 16-quarter low presales, outperforming track-record faltered at last: PEPL posted weakest ever presales in past 4 years at 0.9msf (INR5.1b). It launched Hillside Gateway (Cochin) in 3Q contributing 25% of presales. With consecutive 3 quarters of weakness, 9MFY16 presales stood at INR16.4b (-50% YoY, 33% of FY16 annual guidance). Dismal performance was attributable to limited fresh launch and subdued market condition. While we expect with new launch (Kew Garden in Feb-16) presales momentum to improve in 4QFY16, consistency at normalcy would be critical. We cut presales estimates by 20-30% to INR27b/35b in FY16/17E. Gearing rose on Exora deal: Collection velocity remains stable at INR8b. Exora stake purchase (INR6b cash outgo and consolidation of INR5b+ debt) led overall net effective debt to rise by INR13b QoQ to INR46.1b (1.02x). We calculate core-ocf to be break-even in with INR7.7b of construction. Valuation factors in worst phase of capital structure and operations: PEPL remains our preferred play on Bangalore real estate, which albeit lost momentum, still offers better dynamics. But PEPL s massive slippage over 9MFY16 (contrary to track record) highlights the magnitude of prevailing weakness in market. Post sharp corrections, stock valuations factor in the concerns of deterioration in capital structure and weakness in operations. At 1.4x/1.3x FY17/18E BV and at an EV of 10x FY18E cash EBITDA stock offers valuation comfort. Operational normalcy remains near-term trigger. We maintain Buy with target price of INR225 (20% discount to NAV). Sandipan Pal (Sandipan.Pal@MotilalOswal.com); Aashumi Mehta (aashumi.mehta@motilaloswal.com); Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 ss Valuation and view After showing strong resilience during past 2 years of broader weakness, Bangalore real estate market has started showing deterioration at last, as reflected in most the regional players presales trends. With strong momentum in commercial leasing (~13msf in CY15), Bangalore real estate still offers the best demand drivers for housing vertical. However the near-term outlook for housing vertical could remain under pressure due to lack of launches, delay in approval and general weakness in sentiment. PEPL remains our preferred play on Bangalore market with wide presence across asset classes and strategic prowess it has demonstrated in past 2-3 years of operational outperformance. But the massive slippage it has delivered (contrary to track record) highlights the magnitude of market weakness. The company is on track to generate INR6-6.5b of annual rentals by FY17 (v/s FY16 exit of ~INR5.2b) from annuity portfolio. Concern remains on performance of DevCo business. Successful launches would be the key to bring operations back to normalcy, but we expect the improvement would be gradual. Post sharp corrections, stock valuations factor in the concerns of deterioration in capital structure and weakness in operations. At 1.5x/1.4x FY17/18E BV and at an EV of 10x FY18E cash EBITDA stock offers valuation comfort. Operational normalcy remains near-term trigger. We maintain Buy with target price of INR225 (20% discount to NAV). Exhibit 1: We estimate NAV at INR225/share FY18E Rent Co EBITDA (INR b) 7.4 Rent Co EBITDA (post tax) 5.2 Cap rate (%) 8.5 Growth rate (%) 3 Capex needed (INR b) 13 Rent Co EV 81 Dev Co FY18E cash EBITDA 9 Dev Co EBITDA (post tax) 5 Multiple 10 Dev Co EV 54 Hotel & Others EBITDA - tax 1 Multiple 6 Hotel & Others EV 4 Total EV (INR b) 139 Net debt 56 Target value (INR b) 83 Target value per share February

3 Exhibit 2: Key operating parameters and estimates INR b FY12 FY13 FY14 FY15 FY16E FY17E FY18E Sales Collections Construction cost Dev Co EBITDA Rent Co EBITDA Hotels EBITDA Cash EBITDA Capex Cash EBITDA (post capex) Land buying Tax Interets and Dividend QIP FCFE February

4 Story in charts Exhibit 3: Hillside Gateway was launched in 3Q (msf) Exhibit 4: Presales (msf) weaker QoQ led by delayed launch Exhibit 5: Massive slippage in guidance till 9M (INR b) Sales value (INR b) Realization ('000) Exhibit 6: Collections stable, 9M run-rate at par with guidance (INR b) Exhibit 7: Rental inched up on Exora consolidation (INR m) Exhibit 8: Gearing increased by INR13b QoQ (INR b) Rental securitization Capex Loan Receivable discounting loan Dev Project debt February

5 Financials and Valuations Income Statement (INR Million) Y/E Mar E 2017E 2018E Net Sales 15,431 10,523 19,476 25,492 34,198 47,006 46,540 51,160 Change (%) EBITDA 3,739 2,966 5,791 7,203 9,939 10,864 11,315 13,137 EBITDA Margin (%) Depreciation ,397 1,579 1,804 1,944 EBIT 3,132 2,361 5,109 6,311 8,542 9,285 9,511 11,193 Interest 1,234 1,193 1,489 2,290 3,214 3,889 4,413 4,914 Other Income ,000 1,200 Extraordinary items PBT 2,581 1,510 4,256 4,995 6,314 6,196 6,098 7,480 Tax ,314 1,750 2,647 2,231 2,134 2,618 Tax Rate (%) Min. Int. & Assoc. Share Reported PAT 1, ,860 3,143 3,324 3,565 3,364 4,142 Adjusted PAT 1, ,860 3,143 3,324 3,565 3,364 4,142 Change (%) Balance Sheet (INR Million) Y/E Mar E 2017E 2018E Share Capital 3,750 3,281 3,500 3,500 3,750 3,750 3,750 3,750 Reserves 17,862 18,229 23,923 26,292 34,456 37,363 40,069 43,553 Net Worth 21,612 21,510 27,423 29,792 38,206 41,113 43,819 47,303 Loans 15,203 18,829 25,467 30,685 38,528 56,325 61,346 61,493 Capital Employed 39,055 43,007 55,509 63,467 80, , , ,771 Gross Fixed Assets 13,163 17,427 20,058 24,393 31,600 43,600 46,600 50,600 Less: Depreciation 2,971 3,565 4,251 5,143 6,540 8,119 9,923 11,867 Net Fixed Assets 10,192 13,862 15,807 19,251 25,060 35,481 36,677 38,733 Capital WIP 2,936 5,216 9,123 9,955 7,756 12,756 15,756 17,756 Investments 2,679 1,740 1,750 2,887 2,787 2,787 2,787 2,787 Curr. Assets 35,291 36,965 46,426 56,805 82,905 94,949 99, ,302 Inventory 14,743 16,133 18,048 26,463 43,985 50,881 55,199 60,680 Debtors 9,346 8,490 8,010 7,258 8,840 11,751 10,239 10,232 Cash & Bank Balance 3,781 2,013 4,880 3,395 5,368 4,113 3,721 4,693 Loans & Advances 7,422 10,329 15,488 19,689 24,712 28,203 30,251 30,696 Current Liab. & Prov. 13,042 16,257 21,976 29,887 42,828 49,587 50,518 57,835 Sundry creditors 9,210 13,745 20,432 28,089 40,481 47,006 47,936 55,253 Provisions 3,833 2,511 1,544 1,798 2,347 2,582 2,582 2,582 Net Current Assets 22,249 20,708 24,450 26,918 40,078 45,362 48,892 48,467 Application of Funds 39,055 43,007 55,509 63,467 80, , , , February

6 Financials and Valuations Ratios Y/E Mar E 2017E 2018E Basic (INR) EPS Cash EPS Book Value DPS Payout (incl. Div. Tax.) Valuation(x) P/E Cash P/E Price / Book Value EV/Sales EV/EBITDA Dividend Yield (%) Profitability Ratios (%) RoE RoCE Turnover Ratios (%) Asset Turnover (x) Debtors (No. of Days) Leverage Ratios (%) Net Debt/Equity (x) Cash Flow Statement (INR Million) Y/E Mar E 2017E 2018E PBT before EO Items 2,581 1,510 4,256 4,995 6,314 6,196 6,098 7,480 Add : Depreciation ,397 1,579 1,804 1,944 Interest 1,234 1,193 1,489 2,290 3,214 3,889 4,413 4,914 Less : Direct Taxes Paid ,314 1,750 2,647 2,231 2,134 2,618 (Inc)/Dec in WC 7, ,952 11,188 6,539 3,922-1,398 CF from Operations -4,740 2,247 1,273 2,326-3,109 2,693 6,056 12,914 (Inc)/Dec in FA -2,438-6,556-6,533-5,168-5,008-17,000-6,000-6,000 Free Cash Flow -7,178-4,309-5,260-2,843-8,117-14, ,914 (Pur)/Sale of Invest. -1, , CF from Investments -3,508-5,618-6,542-6,305-4,908-17,000-6,000-6,000 (Inc)/Dec in Networth 12, , , ,530 (Inc)/Dec in Debt ,626 6,638 5,218 7,843 17,797 5, Less : Interest Paid 1,234 1,193 1,489 2,290 3,214 3,889 4,413 4,914 Dividend Paid CF from Fin. Activity 10,324 2,025 9,214 2,107 9,669 13, ,954 Inc/Dec of Cash 2,052-1,769 2,868-1,484 1,973-1, Add: Beginning Balance 1,729 3,781 2,013 4,880 3,395 5,368 4,113 3,721 Closing Balance 3,781 2,013 4,880 3,396 5,368 4,113 3,721 4, February

7 Corporate profile Company description Prestige Estates Projects Ltd (PEPL), a premium developer in the South India real estate market, has strong brand equity in the region, notably in Bangalore. It has been operating in the real estate industry over the past 28 years, during which it delivered 160+ projects of 60msf+ of developable area across various RE segments. Company has developed some of Bangalore s largest integrated developments and identifiable landmarks like Prestige Shantiniketan, UB City and one of Bangalore s most successful malls, Forum. Sensex rebased Source: MOSL/Bloomberg Shareholding pattern (%) Sep-15 Jun-15 Sep-14 Promoter DII FII Others Note: FII Includes depository receipts Source: Capitaline Top management Name Irfan Razack Rezwan Razack Medha Gokhale Designation Chairman & Managing Director Joint Managing Director Company Secretary Top holders Holder Name % Holding HSBC Bank (Mauritius) Ltd A/c Jwalamukhi Investment Holdings 4.8 Governement of Singapore 4.3 Reliance Capital Trustee Co. Ltd A/c Reliance Equity Opportunities Fund 3.7 Monetory Authority Of Singapore 1.0 NA 0.0 Source: Capitaline Directors Name Name B G Koshy K Jagdessh Reddy Noor Ahmed Jaffer Pangal Ranganath Nayak Noaman Razack Uzma Irfan Source: Capitaline *Independent Auditors Name D Nagendra Rao Delloite Haskins & Sells Type Secretarial Audit Statutory Source: Capitaline MOSL forecast v/s consensus EPS MOSL (INR) forecast Consensus forecast Variation (%) FY FY FY Source: Bloomberg 10 February

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