Prestige Estates Projects - All eyes on annuity assets - ICICI Securities

Owing to COVID-19 impact, Prestige Estates Projects' (PEPL) Q1FY21 operations saw significant impact as mall shutdowns, delay in residential launches and drop in hotel occupancies impacted cash flows. However, the office segment remained resilient with 99% rental collections for the quarter. We remain bullish on the company's long-term prospects and believe that PEPL can clock rental income of over Rs9bn in FY22E (estimated EV of Rs99bn) which acts as a cushion to consolidated net debt levels of Rs84bn. 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 retain our ADD rating with an unchanged target price of Rs250/share.

- Residential sales may recover in H2FY21: PEPL clocked Q1FY21 gross sales bookings worth Rs4.6bn (PEPL share at Rs4.0bn) which declined 55% YoY. However, gross collections of Rs7.3bn were down only 35% YoY owing to monetisation of ready inventory in White Meadows, Golfshire and Falcon City projects. With 6-7 launches lined up across South India from Q2FY21 onwards, PEPL is targeting to get back to the pre-COVID quarterly run-rate of over Rs10bn of gross bookings and collections from Q2FY21 depending on how the COVID-19 situation evolves. Labour availability at sites is currently at 65-70% of pre-COVID levels and company expects workforce to scale up to 100% levels in Q3FY21.

- Office rentals resilient, mall rentals impacted by shutdown: Prior to COVID-19, PEPL had an exit annuity income stream of Rs10.5bn in FY20 (Rs7.1bn from offices and Rs3.4bn from malls). In Q1FY21, PEPL clocked rental income of Rs1.8bn (down 29% QoQ). While office rentals remained strong with 99% rental collection, mall rentals were negligible owing to complete rental waiver given to tenants by PEPL for the lockdown period in Q1FY21. In Q2FY21, office rentals remain robust with PEPL now offering 50% rental waiver for malls.

- Hotel business to see muted recovery: PEPL has 1,262 operational hotel keys that were generating annual revenue of Rs4.1bn with an EBITDA of over Rs1.0bn. Owing to COVID-19 impact, PEPL's Q1FY21 hotel revenue declined to 90% of pre-COVID levels to Rs124mn with an EBITDA loss of Rs100mn. 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 Rs0.7bn of EBITDA in FY22E.

- Debt levels inch up QoQ, potential stake sale in annuity business a key trigger: PEPL's consolidated net debt inched up by Rs2.3bn QoQ to Rs84.0bn. While residential debt declined by Rs2.3bn QoQ to Rs23.8bn, operational annuity asset debt increased by Rs3.1bn QoQ to Rs62.3bn with under-construction annuity debt remaining flat at Rs7.4bn. PEPL continues to explore a potential stake sale in its annuity business to a strategic investor which may be followed up with a REIT listing in medium term. Any debt reduction through this route is a key trigger for the stock.

Shares of PRESTIGE ESTATES PROJECTS LTD. was last trading in BSE at Rs.232.7 as compared to the previous close of Rs. 231.5. The total number of shares traded during the day was 47952 in over 1360 trades.

The stock hit an intraday high of Rs. 238.9 and intraday low of 230. The net turnover during the day was Rs. 11235437.

Source : Equity Bulls

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