Brigade Enterprises - Resilience amid turbulence - ICICI Securities

FY20 was Brigade Enterprises' (BRGD) best year with strong performance across residential, leasing and hospitality segments. While COVID-19 has impacted operations in H1FY21 across segments, with peak capex behind and gradual improvement expected from H2FY21, we remain bullish on the company's long-term prospects. We expect BRGD's share of rental NOI to grow at 12% CAGR over FY20-23E to Rs5.2bn driven by pre-leasing in Chennai/Bengaluru office projects. The company's focus on affordable/mid-income housing projects in South India and expected recovery in hotel business in FY22E will enable the company to get its growth story back on track. We reiterate our BUY rating with a revised target price of Rs272/share (earlier Rs220) as we roll forward our DCF based NAV to March 2022 and include the recently launched Twin Towers office project in Bengaluru in our estimates.

- Strong rental NOI CAGR of 12% over FY20-23E: BRGD achieved office rental collections of 98% in the April-June 2020 period and the focus remains on incremental office rentals from World Trade Centre, Chennai (2msf of which over 80% is leased) where rentals are expected to commence from Q4FY21 and the Tech Gardens, Bengaluru (3msf of which ~42% is leased) which is already earning partial rentals. As per company, ~0.6-0.7msf of leasing discussions are in the pipeline which the company is targeting to close by March 2021. However, given ongoing COVID-19 impact, we have accordingly assumed BRGD share of FY21/22E rental income at Rs3.0bn/Rs4.5bn, respectively. We have factored in a 50% rental income loss for BRGD's two operational malls in Bengaluru which clocked FY20 rental income of Rs1.2bn. We expect BRGD to clock 12% rental NOI CAGR over FY20-23E with rental NOI of Rs5.2bn in FY23E (BRGD share) owing to incremental rentals from World Trade Centre, Chennai and Tech Gardens, Bengaluru.

- Residential sales to regain momentum in FY22E: While Q1FY21 residential sales were at 40% of pre-COVID quarterly run-rate of 1msf, as per company, sales bookings have improved from August 2020, and company hopes to achieve 60-70% of pre-COVID quarterly run-rate in Q2FY21. We have built in sales bookings of 1.9/3.2msf in FY21/22E and expect BRGD to get back to the pre-COVID quarterly sales run-rate of ~1msf by FY23E where we expect BRGD to clock 3.8msf of sales bookings worth Rs22.7bn.

- Hotel business to see muted recovery: COVID-19 impacted hotels severely in Q1FY21 with just 11% occupancy and cash burn of Rs119mn for the quarter. BRGD currently has ~1,345 operational keys across 7 hotels and with hotels being a deep cyclical sector, we expect recovery to be visible only in H1FY22 and estimate a marginal EBITDA loss of Rs0.1bn in FY21E and Rs0.6bn of EBITDA in FY22E.

Shares of BRIGADE ENTERPRISES LTD. was last trading in BSE at Rs.169.8 as compared to the previous close of Rs. 171.05. The total number of shares traded during the day was 7383 in over 269 trades.

The stock hit an intraday high of Rs. 174.1 and intraday low of 168.3. The net turnover during the day was Rs. 1267141.

Source : Equity Bulls

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