Prestige Estates edges higher as Jefferies retains 'buy' tag, predicts 30% upside

Jefferies believes that Prestige's excellent execution track record, including in different geographies, should help the company overcome challenges as it enters a new asset creation cycle. Additionally, Jefferies suggests that the market may underappreciate the quality of Prestige's residential business.

Jefferies has maintained its positive outlook on Prestige Estates Projects and set a target price of Rs 550 per share, indicating a potential upside of over 30 percent from the current market price of Rs 420.30 as of February 22.

At 9:42am, Prestige Estates Projects traded at Rs 421.30, up Rs 6.25, or 1.51 percent, on the BSE. It has touched an intraday high of Rs 421.75 and an intraday low of Rs 415.50.

Jefferies' analysis of the company's recent analyst meet suggests that the company has successfully expanded into a challenging yet promising market.

"The management aims to double the residential sales and multiply lease income by seven times in the next five years. Its existing residential pipeline is projected to generate significant free cash flow over the next few years, of which 40 percent will be used to fund lease and hotel capex. The remaining capex will largely be debt-funded, leading to an increase in debt levels.

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Jefferies' analysis suggests that Prestige Estates Projects has demonstrated its ability to execute and scale up its operations with successful expansion in Mumbai. The current strong residential upcycle in the market should support Prestige's efforts to scale up its residential business, although the company is a leader in this space.

Office demand is weak due to a slowdown in tech hiring but, with about 50 percent of its lease income to come from non-IT, the company's supply is well-distributed.

Jefferies also notes that the projected scale of capex/debt increase can benefit from risk reduction and/or a benchmark equity infusion in the business. The research firm believes that Prestige's excellent execution track record, expansion to different geographies, should help it overcome challenges as it enters a new asset creation cycle. Additionally, Jefferies suggests that the market may underappreciate the quality of Prestige's residential business.

The company's consolidated net profit surged 45.2 percent to Rs 127.80 crore in Q3 FY23 as against Rs 88 crore reported in the same period last year. Revenue from operations surged 74.5 percent year on-year to Rs 2,317 crore in the quarter ended December 31, 2022.

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The realtor reported profit before tax of Rs 232.10 crore, up 65.7 percent from Rs 140.10 crore in Q3 FY22.

During the quarter, total expenses spiked 75.39 percent to Rs 2,113.5 crore. Contractor cost was Rs 610.8 crore, purchase of materials was at Rs 146.2 crore, employee benefits expense stood at Rs 156 crore while finance costs was Rs 200.9 crore.