Friday, February 3, 2012

>Prestige Estates Projects

Prestige’s 3QFY12 top line of ~INR1.7bn missed our as well as consensus estimates by 18% and 12%, respectively. This miss was on account of non-completion of the Prestige Neptune Courtyard project which was expected to be completed during the quarter. At the PAT level, the miss was lower at 8% due to lower-than-expected interest expense.

The key positives from results were continuing strong sales volume momentum at its new projects, as well as a pick-up in the pace of realisation of its sundry debtors. In 9MFY12, the company already nearly achieved its full-year FY12F sales guidance of INR15-16bn. We remain positive and maintain our BUY on the stock, which is currently trading at a 47% discount to our NAV of INR143 per share and 38% discount to our price target of INR122 per share.

Top line misses estimates due to non-completion of one project
■ Prestige Estate’s standalone 3QFY12 revenue of ~INR1.7bn (-54% y-y and +30% q-q) missed our as well as consensus estimates by 18% and 12%, respectively. The miss was on account of lower revenue
contribution from Prestige Neptune Courtyard, the project which was expected to be completed during the quarter.

 Overall EBITDA margin at 30% (+400bps y-y and -800bps q-q) was largely in line with our estimate of 29%. The q-q drop in the margin reflects a higher contribution from sales of residential and commercial
projects, which have a lower margin vis-à-vis that on investment properties.

 On the back of lower revenue, EBITDA at INR502mn (-46% y-y and +2% q-q) missed our as well as the Street’s estimates by 14% and 11%, respectively.

 Interest expense at INR159mn was lower than our expectation of INR214mn because the higher-than-expected interest cost was capitalised. The reason for higher interest capitalisation was on the back of a higher revenue contribution from the sale of completed commercial property.

 Due to lower interest expense, the earnings miss at the PAT level was only ~8% versus our and consensus estimates of INR306mn and INR308mn, respectively.

Sales momentum remains strong, realisation of debtors gathers pace
 The company maintained strong sales momentum in 3QFY12 after a robust response to its Prestige Tranquillity and Prestige Park View projects, launched in the last quarter (2QFY12). The company sold nearly 1.0mn sq ft in 3QFY12 and approx. 3.6mn sqft in 9MFY12.

 Having achieved sales totalling INR4.8bn in 3QFY12 (~INR7.8bn in 2QFY12), total sales for 9MFY12 now accumulates to ~INR14.7bn. This has already nearly met management sales guidance of INR15- 16bn for full-year FY12. After the successful launch of its large-sized residential project Bella Vista, Chennai in January 2012, sales for fullyear FY12F should beat the management guidance by a wide margin, we expect.

 In line with management commentary, realisation of its sundry debtors on Prestige Shantiniketan project picked up pace. During the quarter, the company realised INR1.1bn of receivables (nearly 25%) on Prestige Shantiniketan, and as a result, the outstanding debtors on the project have now been reduced to INR3.3bn. We believe further realisation of debtors will be a positive catalyst for the stock.

■ Realisation of debtors, coupled with robust sales momentum, led to strong cash flow generation of INR3bn during the quarter. However, an increase in net debt by ~INR1.0bn was on account of cash payment towards land acquisitions or advances pertaining to joint development agreements (JDA), in our view. As of end-Dec11, the company has consolidated net debt of ~INR14bn (or debt: equity ratio of 0.66x) and 13.5% as its average cost of debt, nearly 10bps lower than in its previous quarter.

Maintain BUY; available at 47% discount to NAV
We remain positive on the stock on account of 1) continuing strong sales momentum; 2) a pick-up in revenue recognition as newer high-value projects reach the revenue threshold in FY13F; and 3) further realisation of debtors related to the Prestige Shantiniketan project as the office leasing environment remains conducive in Bangalore. We reiterate our Buy call, with the stock trading at a deep discount of 47% to our NAV of INR143 per share and 38% discount to our price target of INR122 per share.

To read the full report: Prestige Estates Projects