Maintain BUY on Prestige Estates Projects - Time to consolidate - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

Prestige Estates Projects (Q4FY20): Time to consolidate. Maintain BUY
(TP Rs 280, CMP Rs 221, MCap Rs 871 bn)

We maintain BUY on PEPL with SOTP of Rs 280/sh. We have decreased our FY21/22E EPS estimates by 40%/31% to factor in protracted recovery from COVID-19 related slowdown in sales velocity as well as construction, and delayed launches. PEPL pre-COVID re-rating was backed by robust expansionary plans on asset build out and likely de-leveraging through REIT. New business development initiatives in Mumbai market and stake purchase in DIAL hotel in Delhi was being looked at geographical diversification. COVID-19 puts spanner in the wheel and we believe it's time for PEPL to refine capital allocation and restrict high exposure to hospitality and Mumbai premium/office projects. As such FY21E residential collections will remain subdued and headwinds like work from home & retail footfall/hotel occupancy normalization will take time. Nonetheless PEPL remain well placed to tide over near term weakness with timely fund raise of Rs9bn during 4QFY20 and likely pre REIT placement in FY21E.

Weak 4QFY20 financial performance: PEPL reported 4QFY20 Revenue/EBIDTA of Rs 19.8/5.0bn. EBIDTA margin came in at 25.2% (vs 24.7/26.8% YoY/QoQ). APAT stood at Rs 154mn (-89/-90% YoY/QoQ). Weak performance resulted in Rev/EBIDTA/APAT miss of 26/30/90% respectively vs. our estimates. Shutdown for the last 15 days of Mar-20 led to rev shortfall of ~2bn.

COVID dampens sales as well as construction velocity: Labor availability at 30-40% is gradually picking up. While things are looking up in Bengaluru already, PEPL has put on hold construction plans for Mumbai projects. As expected, Office Leasing continues to perform, Malls/Hospitality severely impacted & expected to pick up only in 2HFY21. Moratorium on interest availed for most projects as inflow has been virtually nil in Malls/Hospitality. However, few malls have started opening up with ~30% footfall, esp. in Bangalore, which is encouraging. While no signs of Hospitality picking up yet, costs have been brought down to ~20% level by firing all contractors, barely breaking even.

Steady 4QFY20 pre-sales and collections: PEPL gross pre-sales volume/value stood at 2.1mn sqft (+27% QoQ)/Rs 12.1bn (-8% QoQ, includes Rs 1.6bn commercial strata sales). The Company achieved FY20 gross pre-sales value of Rs 45.6bn (PEPL share Rs 37.8bn). The quarter saw strong collections (PEPL share) of Rs 10.9bn with the total collections for FY20 at Rs 37.6bn as guided.

BS concerns receding as leverage moderates: Net debt has reduced by Rs 10bn QoQ to Rs 76.7bn in 4QFY20. The Net D/E stands at 1.43x post Rs ~9bn equity infusion. However, (1) Recent allotment of preference shares to GIC for a consideration of Rs 4.2bn and further Rs 4.6bn equity raise from institutional investors, (2) Likely fund raise of ~Rs25bn ($300-400mn) from - select PE investors pre-REIT, (3) REITs eventual listing in FY22E provides sufficient liquidity to PEPL capex plans while maintaining debt at current position, significantly improving the D/E structure. No further equity dilution planned at entity level.

Shares of PRESTIGE ESTATES PROJECTS LTD. was last trading in BSE at Rs.221.55 as compared to the previous close of Rs. 223.6. The total number of shares traded during the day was 21988 in over 1034 trades.

The stock hit an intraday high of Rs. 229.95 and intraday low of 216. The net turnover during the day was Rs. 4921961.

Source : Equity Bulls

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