Prestige Estates Projects - Yet Another Strong Performance - Nirmal Bang

Prestige Estates Projects' (PEPL) 1QFY13 revenue was 8%/7% below our/Bloomberg consensus expectations on account of lower revenue recognition. PAT was 22%/24% above our/consensus estimates due to higher operating margin (OPM) and other income, which includes non-recurring tax free dividend of Rs60mn. Adjusted for this, PAT was 7%/9% ahead of our/ Bloomberg consensus estimates. Operationally, it was yet another strong quarter with a record pre-sales of Rs10.1bn (up 56% QoQ), healthy cash collection (excluding rentals) of Rs4.2bn and reduction in debtors by ~Rs450mn QoQ, thereby reaffirming our positive stance on PEPL. We expect revenue recognition to pick up in FY13 as key projects, including White Meadows (Apartments), Kingfisher Tower and Tranquility, cross their threshold limit. We retain our Buy rating on the stock with a TP of Rs143 (20% discount to our one-year forward NAV of Rs177).

Strong OPM, higher other income and lower tax rate aid PAT: PEPL posted revenue of Rs2,192mn (up 8.4% QoQ) as Techpark III and White Meadows (Villas) crossed the threshold limit however revenue was below our expectations by 7% on account of lower revenue recognition from White Meadows. OPM was healthy at 32.1%, above our estimate of 31.2%, given the favourable project mix. Other income jumped 75% QoQ to Rs272mn as it includes non-recurring tax free dividend of Rs60mn. This also led to lower tax rate of 25% against our estimate (33%). Consequently, PAT stood at Rs493mn versus our estimate (Rs404mn).

Another strong quarter of pre-sales: PEPL reported volume of 2mn sq ft (up 53% QoQ) and pre-sales of Rs10.1bn (up 56% QoQ), largely driven by its new residential project launches (1.4mn sq ft) where it managed to pre-sell 37 %(Rs4bn), and from its earlier launched residential projects like Bella Vista (Rs2.3bn) and Tranquility (Rs0.9bn). Further, its commercial project, Techpark III has witnessed a sharp increase in pre-sales (Rs1.6bn) as the sales have been largely to investors, where the tenancy risk lies on investors, as indicated by management. PEPL has maintained its pipeline of new project launches (8mn sq ft) and pre-sales of Rs25bn (40% achieved so far) in FY13, which we believe is achievable, given our positive view on Bangalore market.

Outlook: PEPL trades at a 36% discount to our NAV, offering an attractive risk-reward profile given its rising rental income, healthy balance sheet (consolidated net D/E ratio of 0.63x), less capital-intensive joint development agreement projects, unrecognised revenue (Rs42bn) and positive operating cash flow. We expect PEPL's Bangalore property (contributing 88% to gross NAV) to continue to do well following steady absorption and inventory levels, thanks to demand from the IT/ITES sector.

Source : Equity Bulls

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