Why you should accumulate the stock of Prestige Estates

Bavadharini KS | Updated on February 13, 2021

Successful conclusion of deal with Blackstone will be a catalyst

The stock of Prestige Estates Projects, a Bengaluru-based realty player, has been inching up slowly since its March lows last year, thanks to favourable residential market, stable property prices and low interest rates.

The goodies doled out by the Centre for home buyers in the past year since the outbreak of Covid-19 too could benefit realty players, including Prestige. This along with the announcement in the Budget for home buyers in terms of extension of interest deductions on home loans and the Centre’s focus on affordable housing are also positives for the company.

Given that Prestige has a dominant presence in the Bengaluru market, where the demand for both home properties and office occupancy is strong (despite the trend of working from home), and a fair degree of brand recognition, the company is well-placed to benefit from revival. The company is on a stable growth track in both its commercial and residential businesses, and boasts a strong launch pipeline in all its segments.

It has 47 ongoing projects across segments -- residential (mid-income and luxury/premium categories) and commercial (office, malls and hotels)-- and spread across 56.31 million sq ft in various cities which could help in steady cashflows going ahead. The huge land bank (262 acres) available for potential development too bodes well .

While the demand momentum in both residential and commercial is likely to sustain, the deal with Blackstone Group where the company has a signed a term sheet for sale of certain commercial assets (office, hotels and malls) is to be monitored. If the deal goes through, then the company is likely to receive ₹9,160 crore which would help bring down the debt and plan expansion of its operation in both residential and commercial. At present the company’s debt-to-equity ratio is 1.5 times and post the Blackstone deal, this ratio is expected to be maintained at 0.5 times by the management.

At the current market price of ₹287, Prestige trades at 24 times its FY22 estimated earnings. Though it appears slightly less expensive compared to other realty players, including Oberoi Realty (25 times), investors with high-risk appetite can look to accumulate the stock on dips. For one, when the deal with Blackstone Group goes through, the company would become virtually debt-free, giving it room for expansion. Two, given the multiple ongoing projects at various stages of completion, the company could witness steady cashflows going ahead. And lastly, it has strong launch pipeline for the next 4-6 quarters across segments.

Revenue to grow

About 75 per cent of Prestige’s revenue is from the residential segment while the balance is contributed by the commercial segment. Though the company is present across residential segments, it has most of its completed and nearing completion residential units in mid-income segment (about 60-70 per cent) as on December 2020. As home buyers preferences towards middle-income house property are improving, it bodes well for the company revenue.

Also, the location of its projects in popular areas such as Whitefield, Hebbal, Nandi Hills and Electronic City would work well for realisations. The brand recognition and quality of construction too helps the company command better pricing in the market, particularly in Bengaluru regions. The average price realisation in Bengaluru is around ₹4,935 per sq ft but Prestige is able to realise around Rs 4,960-6,682 per sq ft. Its realisations are also superior to other players in Bengaluru markets such as Brigade Enterprises (Rs 6,022 per sq ft).

On the commercial segment side, Prestige has a strong office portfolio which contributes to about 14 per cent to the overall revenue. It has about 19 operating office projects across Bengaluru and Chennai. The revenue from its commercial segments is likely to grow as it has multiple on-going projects in this segment as well. It has 11 on-going projects in office segments across Chennai, Bengaluru, Delhi and Pune. In retail (malls) and hotels, the company has three ongoing projects each.

The company’s on-going and capex spends of future commercial projects are likely to continue even if some portion of its commercial portfolio (office and malls) is considered for REIT. As per rules REITs are mandated to invest 80 per cent of their corpus in rent generating, completed properties.

Strong launch pipeline

Taking cues from the improving demand conditions, Prestige was able to launch five new residential projects in 7.11 million sq ft during the nine months ended in December 2020. During same period, the company achieved new bookings of ₹ 3,610.3 crore, of which nearly 40 per cent came from new project launches, 30 per cent from completed projects and the remaining from ongoing projects.

It has several upcoming projects planned as well. In the residential segment, it has 12 projects across 30.92 million sq ft planned in next 2-3 years across Bengaluru, Chennai and Mumbai. The company has also expanded to other regions, including Delhi, Noida and Hyderabad to capture the improving market conditions.

Similarly, in its office portfolio it has planned to launch 14 projects spanning in 29.29 million sq ft in Bengaluru, Hyderabad and Mumbai regions.

On retail front, three malls and four hotels are planned to be launched in the next 2-3 years.

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Published on February 13, 2021
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