We attended Prestige Estates Projects (PEPL)’s analyst meet held on February 21 where the management highlighted its aggressive growth plans across segments: The company aspires to double its annual residential sales bookings to ₹25,000 crore by FY26 from about ₹12,000 crore in FY23E led by expansion in Mumbai, NCR and Pune markets; incremental rental income of ₹2,550 crore from offices/malls by FY28 which would require ₹15,900-crore capex; the company plans to utilise 40 per cent of its annual residential operating surplus to fund capex and expects peak net debt to rise to ₹11,000-12,000 crore by FY28 vs ₹4,700 crore as of March 2023.
Key risks include residential demand slowdown and weak leasing in annuity projects.
The company has achieved 9MFY23 gross sales bookings of ₹9,040 crore on the back of 11.2 million sq ft (msf) of new launches across residential and commercial sale projects. Given the strong business development pipeline and the company’s plans to cumulatively launch 94 msf of projects over FY23-25 (32 msf in FY23, 32 msf in FY24 and 30 msf in FY25), the company aspires to double annual residential sales bookings over FY23-26.
As per enhanced disclosures provided by the company, as of December 2022, pending gross capex across office/malls and hotels is ₹20,600 crore, of which ₹18,000 crore is pending and will be spent over Q4FY23-FY28. Against the balance gross capex of ₹15,900 crore for offices and malls, the company estimates incremental rental income of ₹2,550 crore by FY28 from over 30 msf of incremental leasable area becoming operational.
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 in order to keep overall debt levels in check. We retain our BUY rating with an unchanged March 2023 NAV-based target price of ₹530/share.
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