Q1FY24 Review: Brigade Enterprises: Muted performance; outlook stable

10 Aug 2023 , 12:05 PM

Brigade Enterprises (BRGD) reported a muted quarterly performance for Q1FY24, across both Residential and Commercial segments. Residential sales were impacted negatively by delays in new launches, which have been pushed to H2FY24. Commercial segment witnessed muted demand, due to ongoing weakness in SEZ leasing. Over the last 2-3 years, BRGD has been active in adding projects; also acquired ~10acres land in Hyderabad in Q2FY24. BRGD is expected to make ~Rs14bn of land payments over next few quarters, although mgmt remains confident of no meaningful increase in net debt. Retain BUY with Rs635 TP. 

Residential: Pre-sales impacted by lack of new launches: 

BRGD reported pre-sales of Rs10bn; excluding land owners share, pre-sales came in at Rs8.5bn, up 4.7% YoY. Muted performance was driven by slowdown in launches (1 launch in Q1 – 0.3msf in Bangalore) as change in the state government was causing approval delays. Also, registration of properties in Karnataka had slowed down. Mgmt expects these issues to get resolved in the next 1-2 quarters. Demand on ground remains quite strong across projects. Over next 3-4 quarters BRGD expects to launch ~7.9msf of residential projects, key being Chennai TVS launch in Q4FY24. 

Annuity and Hospitality – stable performance: 

BRGD reported net leasing of 61,000sq.ft in Q1. At 85%, its 8.7msf of Office and Retail portfolio occupancies were flat QoQ. Leasing was muted as SEZ demand was weak, and non SEZ portfolio is 100% leased. Mgmt expects Q2FY24 to fare better. Retail portfolio is witnessing 12% LTL consumption growth, driven by Jewellery, Beauty, Travel, etc., while Multiplexes remained weak. Hospitality portfolio reported occupancy of 67%, flat QoQ but down YoY; while ARR was up 16% YoY. 

Net debt decreases QoQ; retain BUY: 

BRGD’s P&L margins were negatively impacted by higher fixed costs, and will improve steadily from hereon. Despite ~11% QoQ decline in collections, BRGD reported Rs1.3bn QoQ decrease in net debt. Residential business is now net debt free, and mgmt expects it to continue with minimum debt. BRGD has added 3.5msf of land bank in Hyderabad for Rs7bn during Q2FY24, and will cumulatively incur land payments of Rs14bn over the next few quarters.