Brigade Enterprises - Q4FY21 - Record quarter for residential sales - ICICI Securities

Q4FY21 saw Brigade Enterprises' (BRGD) clocking record residential volumes of 1.66msf worth Rs10.2bn (up 56% YoY in value terms) driven by strong uptick in sales from its Hyderabad and Chennai projects which accounted for 40% of the quarter's sales. While incremental office leasing and malls/hotels will continue to see pressure in H1FY22, we expect H2FY22 to see a gradual pickup in these segments. With peak capex behind and a strong pipeline of residential launches, we remain bullish on the company's long-term prospects. We expect BRGD's share of rental NOI to grow at 28% CAGR over FY21-23E to Rs4.8bn driven by leasing in Chennai/Bengaluru office projects. We reiterate our BUY rating with an unchanged Mar-22 NAV based target price of Rs346/share. Key risks are prolonged weakness in office leasing and slowdown in residential demand.

- Record quarter for residential sales: While Q3FY21 saw BRGD clock sales bookings of 1.53msf worth Rs9.2bn, Q4FY21 saw BRGD achieving record sales bookings of 1.66msf worth Rs10.2bn (up 58% YoY in volume terms and up 56% in value terms). This was driven by Hyderabad (Citadel) and Chennai (Xanadu/WTC) markets which contributed to 40% of the quarter's sales similar to Q3FY21. On the basis of a strong H2FY21 performance, BRGD has clocked FY21 sales of 4.6msf worth Rs27.7bn (up 16% YoY in value terms). While Q1FY22 is expected to be muted owing to second Covid wave impact, with 1.43msf of planned launches and 7.2msf of unsold inventory, we have built in sales bookings of 5.0msf each in FY22/23E.

- Robust office rental collections, incremental leasing remains key: BRGD achieved Q4FY21 office rental collections of 99%. The focus remains on incremental leasing with WTC Chennai rentals expected to commence from Q2FY22 (2msf of which over 80% is leased) and Tech Gardens, Bengaluru (3msf of which ~42% is leased). As per company, ~1msf of fresh leasing discussions are in the advanced stage of which 0.75msf is in Tech Gardens. However, any deal closures are subject to lockdowns being lifted and international travel seeing pick up. BRGD has expiries of 0.5msf in its existing office portfolio in FY22 of which the company management remains confident of retaining the entire tenant base. For its malls, the company expects a similar round of rental waivers for lockdown period as seen in FY21.

- Residential debt decreases QoQ on robust sales and collections: BRGD's Q4FY21 collections rose 64% QoQ to 11.2bn leading to Rs4.0bn of operating surplus which was offset by capex of Rs1.3bn and interest payment of Rs1.0bn. Overall, BRGD's share of net debt reduced by Rs2.9bn QoQ to Rs26.5bn with residential segment debt reducing by Rs1.1bn QoQ to Rs5.0bn. With peak capex now complete in Tech Gardens, Bengaluru and World Trade Centre, Chennai we expect net debt levels to remain around current levels over FY22-23E.

Valuations & views

- We reiterate our BUY rating with an unchanged target price of Rs346/share based on March 2022 DCF based NAV factoring in new residential project additions and lower cap rate assumption of 8% for the annuity business.

- For annuity business, we have factored in a 30% loss in mall rentals for FY22E and all incremental leasing in Tech Gardens/WTC Chennai to commence from Q2FY22.

- With hotels being a deep cyclical, we expect recovery to be visible only in FY23E and estimate a marginal EBITDA of Rs0.2bn in FY22E and Rs0.6bn of EBITDA in FY23E.

- With residential sales took a hit in H1FY21 owing to COVID impact, the strong bounce-back in Q3FY21 and Q4FY21 sales to above the pre-COVID run-rate of over 1msf has led us to build in sales bookings of 5.0msf each in FY22E and FY23E accounting for a muted Q1FY22 in light of second Covid wave.

- Key risks to our call are prolonged weakness in office leasing and slowdown in residential demand in South India.

Shares of BRIGADE ENTERPRISES LTD. was last trading in BSE at Rs.259.15 as compared to the previous close of Rs. 249.3. The total number of shares traded during the day was 124969 in over 3611 trades.

The stock hit an intraday high of Rs. 283.4 and intraday low of 255. The net turnover during the day was Rs. 33186710.

Source : Equity Bulls

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