Brigade Enterprises - Long term growth story intact - ICICI Securities

Q1FY21 was a weak quarter across segments for Brigade Enterprises (BRGD) barring offices as COVID-19 impact led to mall shutdowns, delay in residential launches and drop in hotel occupancies. However, we remain bullish on the company's long-term prospects and expect BRGD's share of rental income to grow to Rs4.6bn by FY22E from Rs2.7bn in FY20 driven by pre-leasing in Chennai/Bengaluru office projects. The company's focus on affordable/mid-income housing projects in South India and expected recovery in hotel business in FY22E will enable the company to get its growth story back on track. We reiterate our BUY rating with an unchanged target price of Rs220/share which factors in COVID-19 impact across segments.

- Leasing in Chennai and Bengaluru assets the key monitorable: BRGD achieved office rental collections of 98% in the April-June 2020 period and has not seen any renegotiations/cancellations in its operational office assets. In FY21, the key focus will be on incremental office rentals from World Trade Centre, Chennai (2msf of which over 80% is leased) where rentals are expected to commence from Q4FY21 and the Tech Gardens, Bengaluru (3msf of which ~42% is leased) which is already earning partial rentals. Management now expects Tech Gardens to be fully leased by Q2FY22 vs. Q4FY21 earlier as leasing enquiries pick up post lifting of lockdown. We have accordingly assumed BRGD share of FY21/22E rental income at Rs3.1bn/Rs4.6bn, respectively. We have factored in a 50% rental income loss for BRGD's two operational malls in Bengaluru which clocked FY20 rental income of Rs1.2bn.

- Debt levels rise marginally QoQ: BRGD has taken moratorium on mall/hotel assets debt of ~Rs12bn and has debt maturities of Rs2.9bn in FY21E. In Q1FY21, BRGD's share of net debt grew by Rs0.4bn QoQ to Rs28.7bn including partial interest moratorium on hotels/malls of Rs0.4bn. BRGD managed to generate operating surplus of Rs0.8bn in Q1FY21 through reduction in fixed costs and overheads.

- Hotel business to see muted recovery: COVID-19 impacted hotels severely with just 11% occupancy and cash burn of Rs119mn for the quarter. BRGD currently has ~1,345 operational keys across 7 hotels and with hotels being a deep cyclical sector, we expect recovery to be visible only in H1FY22 and estimate a marginal EBITDA loss of Rs0.1bn in FY21E and Rs0.6bn of EBITDA in FY22E.

- Residential sales may recover in H2FY21: BRGD achieved sales of 0.42msf worth Rs2.5bn (down 58% YoY in value terms) owing to COVID-19. NRIs accounted for 25% of bookings and ready inventory share was 30%. While BRGD has another 2.1msf of launches lined up in FY21, exact timing of launches is dependent on how demand improves in H2FY21. We have built in sales bookings of 1.7/3.2msf in FY21/22E.

Shares of BRIGADE ENTERPRISES LTD. was last trading in BSE at Rs.149.35 as compared to the previous close of Rs. 148.3. The total number of shares traded during the day was 35049 in over 1447 trades.

The stock hit an intraday high of Rs. 153.55 and intraday low of 146. The net turnover during the day was Rs. 5291720.

Source : Equity Bulls

Keywords