Buy Prestige Estate Projects; target of Rs 225: Motilal Oswal

1QFY17 Consolidated P&L weakened sequentially with revenue at INR 9.5b (v/s INR 9.6b QoQ), EBITDA at INR 1.7b (OPM of 18.1%) v/s INR 2.5b (OPM of 26.4%) in 4Q and PAT at INR 478m (v/s INR723m). Gearing marginally went down by INR 1b QoQ to INR 55.8b (net DER of 1.13x). pre-sales remained subdued at 0.8msf (INR 5.1b) v/s 1.5msf (INR 9.9b) in 4Q. Collections up 16%QoQ in 1Q. Leasing and rental runrate was down 1Q, at 0.04msf and INR 1.312b respectively. FY17 guidance comprises 15-25% growth in presales, 10% in collections, 30%-35% in rentals on the back of new completions, and gearing at elevated level of 1-1.25x as capes cycle would continue.   

PEPL remains our preferred play on Bangalore real estate, which albeit lost momentum, still offers better dynamics. But PEPL’s massive slippage over FY16 (contrary to track record) highlights the magnitude of prevailing weakness in market. Post sharp corrections, stock valuations factor in the concerns of deterioration in capital structure and weakness in operations. At 1.7x/1.6x FY17/18E BV and at an EV of 10x FY18E EBITDA stock offers valuation comfort. Operational normalcy remains near-term trigger. We maintain Buy with target price of INR 225. For all recommendations, click here 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.