Q1FY24 Review: Prestige Estates: Strong growth continues; net debt rises sharply

10 Aug 2023 , 11:58 AM

Prestige Estates (PEPL) reported strong pre-sales — among the highest in the listed space. This was despite new launches being muted, although the outlook remains strong with large project launches planned, especially in H2FY24. Despite healthy collections, PEPL’s net debt increased further, primarily on higher land capex. Mgmt shared that land capex is likely to remain elevated to achieve pre-sales Cagr of 30% over FY23-26. Overall, PEPL remains on track to achieve its pre-sales and annuity segment guidance; although balance sheet leverage remains key. Retain BUY with Rs650 target price. 

Strong pre-sales despite weak launches: 

PEPL reported pre-sales of Rs39bn up 30% YoY, despite launches being a third of Q1FY23 — down from 9.7msf in Q1FY23 to 3.1msf in Q1FY24. PEPL launched ‘Lavender Fields’ project that contributed over 50%, while Mumbai projects contributed ~15%. PEPL is targeting ~200bn of pre-sales in the medium term, and that would require business development investment of Rs40- 50bn p.a., through a combination of outright and JV/JDA projects. PEPL is aiming for strong launches in H2FY24, including Palm Grove (~10msf potential), Prestige City Hyderabad (>13msf potential), Pallava Garden in Chennai (>4.5msf), which are likely to support pre-sales growth. 

Elevated land capex drives net debt higher: 

Cash collections came in at Rs27.5bn, up 28% YoY. PEPL reported operating cashflow of Rs10.6bn (margins of 34%); however, land capex of Rs13bn and commercial capex of Rs6bn drove net debt increase QoQ of Rs9bn to Rs64.8bn. Management shared that land capex for the quarter included pending payments for forthcoming projects like Park Grove, Ocean Towers, Nautilus, Prestige City Hyderabad, etc. 

Strong growth outlook; retain BUY: 

PEPL aims to double its FY23 presales by FY26 to Rs250bn. In the Annuity segment, it is targeting >10x scale-up in rentals by FY28 with an expected yield to cost of ~25%. Analysts of IIFL Capital Services NAV conservatively builds in a much slower ramp-up across Residential and Annuity businesses, and expects a higher peak net debt-to-equity at 1.2x by FY26 (vs PEPL guidance at 0.64x). With elevated land capex, net debt remains a key metric to watch, retain BUY.