Well placed for strong growth ahead…
About the stock: Brigade Enterprises (BEL) is one of the leading property developers in South India. Its offerings include Grade-A commercial property, affordable to ultra-premium housing in real estate business and operational marquee hotel assets in hospitality segment.
• Given the healthy end user demand, strong launches, it has reported a robust sales value CAGR of ~26% over FY19-23 to ₹ 4107 crore
Q3FY24 Performance: The sales volume (BEL share) of 1.7 msf worth ₹ 1400 crore was up 9.6% and 38.6% YoY, respectively driven by strong launches of 2.7 msf in Bengaluru. For 9MFY24, Sales value at ₹ 3292 crore was up 26% YoY. On financial front, topline at ₹ 1174 crore was up 43% YoY. PAT at ₹ 79.5 crore was 60% YoY.
Investment Rationale
• Strong launch pipeline to drive sales momentum: BEL has a strong launch pipeline of ~ 10.8 msf over the next 4 quarters with gross development value of over ₹ 10,000 crore, which should drive sales volumes/value ahead. Recently, it also entered into joint development agreement with PVP Ventures to develop a 2.5 million-square-foot, high-rise residential project in Chennai with a revenue potential of about ₹ 2,000 crore. This addition will further add to visibility. We expect overall sales value CAGR of ~18% CAGR over FY23-26 to ₹ 6800 crore, with underlying end user demand being robust.
• Pick up in leasing visible; Looking to expand Rental/Hotel Portfolio: Brigade has an operational leasing portfolio of 8.7 msf of commercial & retail assets, of which 8.1 msf has been leased and portfolio occupancy is 95%. The company plans to expand its rental portfolio by ~5 msf across office/malls, with cumulative annual rental potential of ₹ 500 crore. Furthermore, it plans to add 1200 keys to its existing Hospitality portfolio of 8 operational hotels with ~1474 keys, by adding four new properties.
• Enjoys healthy balance sheet: Brigade enjoys a debt free residential segment, while ~90% of its debt in leasing and hospitality segment is securitised. Net debt as on Q3 stood at ₹ 2139 crore (BEL share at ₹ 1474 crore), with net debt/equity of 0.7x. The strong balance sheet ensures faster scalability with lower risk of leverage, going ahead
Rating and Target Price
• We like BEL given robust residential sales volumes traction as well as outlook and strong balance sheet. We expect sustained recovery/ expansion in commercial leasing & hospitality to drive stable cashflows/growth momentum. We maintain BUY rating and value it at target price of ₹ 1100 on SoTP basis.
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