Buy Prestige Estates Projects; target Rs 195: Motilal Oswal
Motilal Oswal is bullish on Prestige Estates Projects (PEPL) and has recommended buy rating on the stock with a target price of Rs 195 in its December 17, 2012 research report.
December 20, 2012 / 12:05 IST
Motilal Oswal is bullish on Prestige Estates Projects (PEPL) and has recommended buy rating on the stock with a target price of Rs 195 in its December 17, 2012 research report.
"PEPL plans to launch fewer projects in 2HFY13 (2-2.5msf v/s ~8msf in 1HFY13), which may thwart its prevailing healthy sales run-rate. Among the key planned projects, company has soft-launched Casa Bella (0.36msf @ INR3,800/sf) at Electronic City in 3QFY13 and sold ~50% of the inventory. Among the rest, Royal Garden (1.4msf @INR3,750/sf), Downtown (Chennai, 0.15msf @INR9,000/sf) and Brooklyn Height (0.13msf @INR5,000/sf) are expected to be launched in 4QFY13.We note on-track movement in most of the key residential projects which are expected to generate revenues by 2HFY13. On the back of ~INR50b+ of unrecognized revenues and steady execution progress, we expect the gap between revenue booking (average INR2-2.5b/Q) and sales run-rate (INR5-6b/ Q) to narrow meaningfully, with almost 2-2.5x scale-up in revenue recognition from 3QFY13. Thus, we estimate ~INR1.5b/INR2.2b/INR1.7b/INR0.5b of revenue booking from Kingfisher Tower/Tranquillity/Bella Vista/Park View respectively.PEPL has 1.65msf of non-yielding pre-leased area, which is expected to generate meaningful rental income over FY13E-14E on completion. Key projects where pre-leasing happened and are expected to be delivered over the next 6 months are: (1) Exora Block 3 (0.21msf, by Jan-13), (2) Vijaya Mall, Chennai (0.3msf, by Jan-13) and (3) Cessna Block 7 (0.3msf, by Mar-13). Among others, almost 20-30% of leasing has been done in Mangalore (0.32msf) and Hyderabad Mall (0.36msf), which are expected to be operational by 3QFY14. We expect annuity income from commercial and malls to improve to ~INR2.1b in FY13E (annualised INR2.8b), INR2.9b in FY14E (annualized INR3.4b) and ~INR4.6b (annualized) by FY15E v/s INR1.68b of FY12.Cessna Block 7 is likely to be handed for fit-outs in December 2012, post which it will have 3 months of rent-free period. Thus, it is unlikely to contribute to FY13 rentals. Cessna Block 8 is at G+1 level of construction progress. PEPL has slowed down construction in Block 8, as Cisco is yet to give the mandate for the same, which it expects to get by January 2013 and subsequently complete the construction by June 2013. Block 7 is likely to contribute rental income of INR223m (83% is PEPL share), thus taking the total annualized rental income from Cessna to ~INR993m.Exora Block 3 is completed and fit-out work is in progress among key tenants like Verizon, QBE etc. The block is likely to yield rent from January 2013. Block 2 would be completed by May 2013, while another ~0.2msf of commercial block is under-construction and shall be ready by August 2013. We estimate FY13E exit rental run-rate from Exora at ~INR240m.On the back of operating performance being ahead of estimate, we upgrade our NAVbased target price by ~9% to INR195 and FY13E/14E EPS estimates by 4-8%. The stock has been re-rated over past couple of quarters in line with our expectation, leading to P/B upgrading from 1x (4QFY12) to 2.1x (at present). Going ahead, we expect further upside hinges on strengthening of P&L and cash flow on the back of robustness in sales momentum and execution. The stock trades at PER (x) of 16.3x FY14E EPS of INR10.4, 2.1x FY14E BV and at 18% discount to our NAV estimate of INR195. Maintain Buy with a target price of Rs 195," says Motilal Oswal research eport.FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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