results review 3qfy 19 14 feb 2019 prestige estates projects estates - 3qfy19 - hdfc sec... · 19...

RESULTS REVIEW 3QFY19 14 FEB 2019

Prestige Estates Projects

BUY

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Launches lagging 3QFY19 Revenue came in at Rs 10.8bn, Rs 1bn lower due to IND AS 115. Margins came in at 31.9% (vs 20.0/27.7% YoY/QoQ). PEPL had deliveries of 7mn sqft in 3QFY19 alone (record deliveries of ~24mn sqft in 9MFY19, 141% ahead of full year guidance) leading to total unrecognized revenue of ~130bn, incl. ~Rs 75bn of earlier reversals (re-recognition over 2.5-3 years).

With 1.6mn sqft launched in 3QFY19, PEPL’s 9MFY19 launches stand at 3.2mn sqft across Bengaluru, Chennai and Hyderabad (vs 10mn sqft guidance for FY19E). Pre sales (PEPL’s share) continued to stand out at ~1.2mn sqft in 3QFY19 (+55% YoY, led by Jindal City – 16% share in pre-sales).

With PEPL not looking at any private deal for its annuity portfolio (after the GIC deal fell through in 2QFY19), it might look to either tap the capital markets or look for a 25% stake sale. Capex intensity is expected to remain high (Rs 1.5-1.8bn/quarter). Monetisation of completed inventory of ~Rs 28bn remains key. We maintain BUY with Rs 292/sh TP.

Highlights of the quarter

HDFC platform update: PEPL expects to complete

deployment of the Rs 25bn commitment over the next 4

quarters with Prestige Smart City already in the bag.

Further 1 project should see closure by FY19-end and

another 2 by Dec 19-end. With PEPL looking at

distressed opportunities, it can route a suitable one via

this platform (ex JDAs which will be on Standalone).

Leasing taking off well: PEPL’s leasable assets now have

an annual exit rental income potential of Rs 7,668mn

with an incremental projected exit rental of Rs 959mn

by FY19E end. PEPL has further properties under

construction with ~Rs 3.3/1.0bn annual potential in

commercial/ retail (incremental cost: Rs 8.0/4.0bn)

Near term outlook: PEPL has a launch pipeline of

~10mn sqft including Prestige Smart City (under the

HDFC platform), Nirvana, Finsbury. Prestige has ~Rs

17bn pending possession money to be received in

addition to ~Rs 25bn of completed inventory. We

remain constructive.

Financial Summary* Year Ending March (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) FY18 FY19E FY20E FY21E

Net Sales 10,776 12,723 (15.3) 13,225 (18.5) 54,986 50,316 52,799 56,121

EBITDA 3,437 2,543 35.2 3,660 (6.1) 10,940 14,221 14,846 15,552

APAT 581 894 (35.0) 968 (40.0) 3,618 4,724 4,459 4,522

Diluted EPS (Rs) 1.5 2.4 (35.0) 2.6 (40.0) 9.6 12.6 11.9 12.1

P/E (x)

20.7 15.9 16.8 16.6

EV / EBITDA (x)

13.0 10.2 9.9 9.5

RoE (%)

10.2 9.4 10.4 10.0

Source : Company, HDFC sec Inst Research, * Consolidated

INDUSTRY REAL ESTATE

CMP (as on 13 Feb 2019) Rs 200

Target Price Rs 292

Nifty 10,794

Sensex 36,034

KEY STOCK DATA

Bloomberg PEPL IN

No. of Shares (mn) 375

MCap (Rs bn) / ($ mn) 75/1,052

6m avg traded value (Rs mn) 50

STOCK PERFORMANCE (%)

52 Week high / low Rs 345/163

3M 6M 12M

Absolute (%) 8.9 (20.5) (35.7)

Relative (%) 6.3 (16.2) (40.8)

SHAREHOLDING PATTERN (%)

Promoters 70.00

FIs & Local MFs 1.86

FPIs 27.07

Public & Others 1.07

Source : BSE

Parikshit D Kandpal, CFA [email protected] +91-22-6171-7317

Kunal Bhandari [email protected] +91-22-6639-3035

PRESTIGE ESTATES PROJECTS : RESULTS REVIEW 3QFY19

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Quarterly Financial Snapshot (Consolidated) Particulars (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) 9MFY19 9MFY18 YoY (%)

Net Sales 10,776 12,723 (15.3) 13,225 (18.5) 32,614 36,500 (10.6)

Material Expenses (5,216) (9,023) (42.2) (7,507) (30.5) (16,883) (24,948) (32.3)

Employee Expenses (1,023) (698) 46.6 (1,049) (2.5) (2,918) (2,180) 33.9

Other Operating Expenses (1,100) (459) 139.7 (1,009) 9.0 (3,154) (1,774) 77.8

EBITDA 3,437 2,543 35.2 3,660 (6.1) 9,659 7,598 27.1

Interest Cost (1,792) (867) 106.7 (1,870) (4.2) (5,245) (2,561) 104.8

Depreciation (870) (405) 114.8 (759) 14.6 (2,211) (1,160) 90.6

Other Income (including EO) 255 179 42.5 403 (36.7) 1,866 549 239.9

PBT 1,030 1,450 (29.0) 1,434 (28.2) 4,069 4,426 (8.1)

Minority Interest 93 98 (5.1) 54 72.2 235 448 (47.5)

Share of associates 63 10 530.0 94 (33.0) 232 112 107.1

Tax (419) (468) (10.5) (506) (17.2) (1,301) (1,448) (10.2)

RPAT 581 894 (35.0) 968 (40.0) 2,765 2,642 4.7

E/o (adj for tax) - - NM - NM (894) - NM

APAT 581 894 (35.0) 968 (40.0) 1,871 2,642 (29.2)

Source: Company, HDFC sec Inst Research

Margin Analysis (Consolidated)

MARGIN ANALYSIS 3QFY19 3QFY18 YoY (bps) 2QFY19 QoQ (bps) 9MFY19 9MFY18 YoY (bps)

Material Expenses % Net Sales 48.4 70.9 (2,251) 56.8 (836) 51.8 68.4 (1,658)

Employee Expenses % Net Sales 9.5 5.5 401 7.9 156 8.9 6.0 297

Other Operating Expenses % Net Sales 10.2 3.6 660 7.6 258 9.7 4.9 481

EBITDA Margin (%) 31.9 20.0 1,191 27.7 422 29.6 20.8 880

Tax Rate (%) 40.7 32.3 840 35.3 539 32.0 32.7 (74)

APAT Margin (%) 5.4 7.0 (164) 7.3 (193) 8.5 7.2 124


Real Estate Performance 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) 9MFY19 9MFY18 YoY (%)

Overall Gross Sales (mn sqft) 1.6 1.0 58.2 1.7 (7.7) 4.7 3.1 52.3

Prestige Share (mn sqft) 1.2 0.8 55.1 1.3 (9.0) 3.7 2.3 60.8

Overall Gross Sales (Rs mn) 11,765 6,717 75.2 10,269 14.6 31,845 20,704 53.8

Prestige Share (Rs mn) 9,368 5,231 79.1 7,974 17.5 24,980 15,019 66.3

Gross Average Realization (Rs/sqft) 7,590 6,869 10.5 6,104 24.3 6,834 6,766 1.0

Collections - Prestige Share (Rs mn) 9,334 9,469 (1.4) 8,493 9.9 25,373 26,107 (2.8)


3QFY19 Revenue came in at Rs 10.8bn (-15.3/-18.5% YoY/ QoQ) (Impact of IND AS 115: revenue lower by Rs ~1.0bn) Margins came in at Rs 31.9% (vs 20.0/27.7% YoY/QoQ) Interest cost was Rs 1.8bn (+107/-4.2% YoY/QoQ). PAT came in at Rs 581mn (-35/40% YoY/QoQ) Prestige was also able to deliver 1.6mn sqft in 3QFY19 alone (~4.7mn sqft in 9MFY19)


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Strong pre-sales momentum continues

During 3QFY19, overall pre-sales increased 55.1% YoY to 1.21mn sqft, with ~Rs 8.0bn in value (realization of Rs 5,995/sqft). With gross lease momentum 0.33mn sqft in 3QFY19 (9MFY19 – 1.4mn sqft; 68% of FY19E guidance). Rental income stood at Rs 1,874mn (Prestige’s share) vs Rs 1,817mn in 2QFY19.

PEPL’s leasable assets now have an FY19E exit rental income potential of Rs 8,628mn (commercial + retail) which is already 8% ahead of the FY19-exit guidance. PEPL has to incur incremental Rs 49.6bn further for development in ongoing residential projects.

While launches were muted in FY18, PEPL has launched projects in Bengaluru, Chennai and Hyderabad of ~3.2mn sqft in 9MFY19 (vs 10mn sqft guidance for FY19E). PEPL has some key projects in the launch pipeline (~10mn sqft) including Prestige Smart City (under the HDFC platform), Nirvana, Finsbury. As a lot of the planned launches are on self owned land parcel (rather than JDAs), the share of PEPL in collections will be significantly higher.

With annuity income witnessing steady growth, PEPL has further properties under construction with ~Rs 3.3/1.0bn annual potential in commercial/ retail respectively (with approx. cost to be incurred pegged at Rs 8.0/4.0bn).

Prestige Share - Sales Area And Value Trend (Rs mn) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Overall Pre-Sales - PS (msf) 0.55 0.73 0.69 0.8 0.78 1.55 1.11 1.33 1.21

Overall Sales Value - PS (Rs mn) 3,465 5,249 4,510 5,278 5,231 10,482 7,638 7,974 9,368

Realisation (Rs/sf) 6,300 7,190 6,536 6,598 6,706 6,763 6,881 5,995 7,742

Collections - PS (Rs mn) 8,159 9,991 10,050 6,588 9,469 8,363 7,546 8,493 9,334

Rental Income - PS (Rs mn) 1354 1384 1,480 1,504 1,641 1,570 1,838 1,817 1,874

Leasing Volume - OA( mn sqft) 0.14 0.77 0.1 0.27 0.35 0.18 0.33 0.24 0.33

Source : Company, PS – Prestige Share, OA – Over All

1.6mn sqft of launches during 3QFY19 in majorly in Bengaluru PEPL is likely to maintain pole position in the southern markets, with 1-1.2x pre-sales volume in the micro-market vs. nearest Bengaluru competitor During 3QFY19, PEPL share total pre-sales was 1.21mn sqft with ~Rs 9.3bn in value (realization of Rs 7,742/sq ft) Gross leasing volume is 0.33mn sqft in 3QFY19


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Net D/E reduced to 1.79x QoQ

3QFY19, consolidated gross debt stands at Rs 85.2bn (an increase of Rs 2.9bn QoQ).

The leverage ratios are not strictly comparable with prior periods on account of Rs 10.2bn AS115 reversals from FY19 opening reserves. While we remain cautious of PEPL’s rising debt levels on account of outgo for land acquisitions and capex for annuity assets, we find comfort in the fact that debt is largely being backed by Rent securitization (32%) /Receivable discounting (11%), and the residential segment’s debt is about 43%. We don’t foresee any near-term liquidity concerns for PEPL.

In the exhibit below, we highlight that PEPL’s cash flow situation is comfortable, with FY19-21E cumulative cash surplus of Rs 1.3bn after meeting land/capex requirements. Prestige has ~Rs 17bn pending possession money to be received in addition to ~Rs 25bn of completed inventory (expected to be monetized over the next 4 quarters)

With a ramp-up in rental income (refer to table below), PEPL will have multiple avenues of de-leveraging its balance sheet, viz REIT’s or stake sale in Rent co. Also, monetisation of residential inventory nearing completion will help cash flows and ease pressure on the balance sheet.

Debt/Equity Ratio Trend (x)

(Rs mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 *1QFY19 *2QFY19 *3QFY19

Consol Net Worth 44,672 44,648 45,171 46,227 46,753 47,392 46,999 47,947 49,627 41,100 41,695 42,348

Consol Net Debt 51,118 50,592 50,935 51,363 52,074 54,679 56,001 58,092 64,560 72,786 75,714 75,651

Consol Net D/E (x) 1.14 1.13 1.13 1.11 1.11 1.15 1.19 1.21 1.3 1.77 1.82 1.79

Source: Company, *1QFY19 onwards leverage ratios are not strictly comparable with previous quarters on account of reversal in reserves of Rs 10.1bn on adoption of IND AS 115

Annuity Rentals Growth Trajectory

PEPL share FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Rental Income (Rs mn) 2,541 2,495 3,264 4,468 5,429 6,194 7,398 8,460 9,314

Leaseable Area (mn sqft) 4.5 5.3 6.5 8.5 9.6 10.7 12.3 12.5 13.0

Rental/sqft/Month 47.1 39.2 41.8 43.8 51.9 53.1 55.1 59.24 62.31

Source: HDFC sec Inst Research

Gross debt has increased significantly on account of consolidation of associate entities (Rs 2.9bn) in addition to the cash outlay of Rs 3.4bn for completing the acquisition Prestige has ~Rs 17bn pending possession money to be received in addition to ~Rs 25bn of completed inventory (expected to be monetized over the next 4 quarters) Further inflows from new launches and HDFC platform to help pare down debt PEPL’s leasable assets now have an annual exit rental income potential of Rs 7,668mn with an incremental projected exit rental of Rs 959mn projected by FY19E end


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Cash Flow situation – Barely Break-Even As PEPL Undertakes Capex PEPL Share (Rs bn) FY19E FY20E FY21E Comments

Inflows:

Customer collections 40.6 40.2 41.1

Rentals 7.8 8.7 10.6

Hospitality (net) 1.9 2.0 2.1

Property Management (net) 0.7 0.7 -

Other Income/Deposits 2.1 2.2 2.3

IPO/IPP Proceeds - - -

Total inflow 53.0 53.8 56.1

Outflows:

Construction Outflow 26.4 27.4 28.2

Corporate And Staff 6.0 5.7 6.7

Construction/Overheads Total 32.3 33.0 35.0

Operational Cash Flows 20.7 20.8 21.1

Interest Payments 8.1 8.1 8.6

Income Taxes 2.1 2.0 2.0

Total Financial Outflows 10.1 10.1 10.6

Net Cash Flow – I 10.5 10.6 10.5

Total Annuity Asset Capex - II 6.4 6.4 6.3 Includes Office, Hotel and Retail capex

Cash Flow Post Capex III = I - II 4.1 4.2 4.2

Land Payments 2.0 2.0 2.0

Stake Buyouts (Exora and others) - - -

Dividend Paid 1.8 1.8 1.8

Others - - -

Capital Outflows IV 3.8 3.8 3.8

Net Inflows V = III -IV 0.3 0.5 0.5 Cash flow break even


Cash flow breakeven as PEPL incurs asset capex


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Summary Of Key Assumptions And Estimates

Estimates Growth (%)

Comments

FY19E FY20E FY21E FY19E FY20E FY21E

Volume assumptions

Residential - Prestige share (mn sqft)

4.8 4.9 5.0 49.0 1.6 1.6 New pre-sales will come from existing unsold inventory and new launches

Average rate (Rs/sqft) 6,962 6,938 7,123 3.3 (0.3) 2.7 Price realisation will remain muted as unsold inventory puts pressure on pricing of new launches

Sales value - Prestige share (Rs mn)

33,749 34,170 35,644 53.9 1.2 4.3 Pre-sales to be driven by ~50% from the existing stock and the balance from new launches

Rental Income:

Gross area for lease (mnsf) 16.8 16.8 18.7 17.1 - 11.0 Forum Shantiniketan, Forum Mysore, Falcon Tower, Cessna, and Trade Tower will contribute to incremental leasing

Prestige Share (mnsf) 12.3 12.5 13.0 15.1 1.8 3.6 Share split across economic interest

Average Occupancy (%) 91.0 95.0 96.0 - 400.0 100.0

Prestige leased space (mnsf) 11.2 11.9 12.5 15.1 6.3 4.7 Multiplied by average occupancy

Average Rental (Rs/sqft/month)

55.06 59.24 62.31 3.8 7.6 5.2 Rental growth in line with product mix

Prestige share - rental income (Rs mn)

7,398 8,460 9,314 19.4 14.4 10.1 12.2% FY19-21E rental income CAGR

Earnings forecast

Residential Sales (Rs mn) 34,686 35,076 37,531 (20.3) 1.1 7.0 Muted residential sales CAGR as pre-sales slowed down on account of weak demand

Rental income (Rs mn) 7,398 8,460 9,314 19.4 14.4 10.1

Others (Rs mn) 8,232 9,264 9,276 56.4 12.5 0.1

Total 50,316 52,799 56,121 (8.5) 4.9 6.3

EBIDTA (Rs mn) 14,221 14,846 15,552 30.0 4.4 4.8 4.6% EBIDTA CAGR for FY19-21E on higher rental income and increasing contribution from high-margin inventory

EBIDTA Margin (%) 28.3 28.1 27.7 836.8 (14.7) (40.5) Margins to expand on better realisations

Net interest expense* 7,011 7,063 7,478 83.2 0.7 5.9 Interest increase in line with capex

12.2% FY19-21E rental income CAGR 4.6% EBIDTA CAGR for FY19-21E on higher rental income and increasing contribution from high-margin inventory


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Estimates Growth (%)

Comments

FY19E FY20 FY21E FY19E FY20E FY21E

PAT (Rs mn) 4,724 4,459 4,522 30.6 (5.6) 1.4 Muted PAT CAGR

PAT Margin (%) 9.4 8.4 8.1 280.8 (94.2) (38.8)

EPS (Rs) 12.6 11.9 12.1 30.6 (5.6) 1.4

Cash flows forecast

CFO - a 7,904 8,507 10,777

CFI - b (1,147) (2,042) (2,931)

FCF - a+b 6,757 6,465 7,846

Free cash flow recovery

CFF-c (7,835) (5,818) (6,233)

Total change in cash - a+b+c

(1,078) 648 1,613


Strong Free cash flow over FY19-21E


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Valuation SOTP valuation – Reduced TP of Rs 292/sh

We have adopted the DCF methodology to arrive at

PEPL’s NAV/share. We value the residential real

estate business at Rs 138/share, commercial annuity

assets at Rs 161/share, retail assets at Rs 43/share,

hospitality at Rs 26/share, project management at Rs

12/share, land bank at Rs 38/share, net deposits to

land owners at Rs 21/share and reduced net debt at

Rs 149/share to arrive at a NAV valuation of Rs

309/share for the company.

For a land bank beyond five years, we have valued it

at current market rates. We maintain BUY on PEPL

with SOTP valuation of Rs 292/share.

We believe organised real estate will benefit over

the long term on account of RERA. In the near term,

uncertainties around new project approvals may

impact new launches and hence cash flows. Overall

RERA is expected to reduce cost of capital for the

sector and improve transparency.

Rs mn Rs/share

(New) Comments

Residential - for sale 51,647 138 NAV based on the methodology discussed

Commercial - lease 60,755 162 NAV based on the methodology discussed

Retail - lease 16,263 44 NAV based on the methodology discussed

Hospitality 9,584 26 10x FY19E EV/EBIDTA

Project management 4,515 12 8x FY19E EV/EBIDTA

Land bank 14,174 38 At current market prices without incorporating construction margins

Deposits (net) 7,772 21 With the land owner for JDA

Total GAV (Rs mn) 164,235 441 Gross net asset value

Less: Net Debt - FY19E - Economic interest 55,737 149 Taken 80% PEPL share of the total net debt

NAV 109,466 292

NAV discount (%)

-

Final NAV

292


We value the residential real estate business at Rs 138/share Commercial annuity assets at Rs 162/share, retail assets at Rs 44/share, hospitality at Rs 26/share, project management at Rs 12/share Land bank at Rs 38/share and net deposits to land owners at Rs 21/share Adding all these we arrive at Gross Asset Value of Rs 441/sh We reduce net debt at Rs 149/share to arrive at total NAV valuation of Rs 292/share for PEPL and Maintain BUY Reduction in TP (vs/ Rs 314/sh earlier) is majorly on account of the increased FY20E Net Debt


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Real estate development – NAV calculation methodology

We have divided PEPL’s entire land bank (with launch

visibility of the next five years) into residential

projects (based on the information given by the

company).

We have arrived at the sale price/sqft and the

anticipated sales volumes for each project based on

our discussions with industry experts.

We have deducted the cost of construction based on

our assumed cost estimates, which have been arrived

at after discussions with industry experts.

We have further deducted marketing and other costs

assumed at 5% of the sales revenue.

We have deducted income tax based on the tax

applicable for the project.

The resultant cash inflows at the project level have

been discounted, based on WACC of 14% (cost of

equity 17% based on beta of 1.5x and debt/equity

ratio of 0.67x). All the project-level NAVs have then

been summed up to arrive at the NAV of the

company.

For commercial office/retail space, we have

discounted rentals using 14% WACC for the

forecasted period and terminal value using the cap

rate of 8.5%.

For land beyond a five-year visibility, we have valued

at current market price.

We have valued hotels at 10x FY19E EV/EBIDTA and

the project management business at 8x FY19E

EV/EBIDTA

From the GNAV, we have deducted the net debt (80%

PEPL economic share) as of FY19E to arrive at the

NAV of the company.

We have used WACC assumption of 14% on account of high debt on books In commercial office/retail space, we have discounted rentals using 14% WACC for the forecasted period and terminal value using the cap rate of 8.5% We have valued hotel at 10x FY19E EV/EBIDTA and the project management business at 8x FY19E EV/EBIDTA We have taken PEPL’s share of economic interest in net debt at 80% to arrive at our NAV estimate of Rs 281/sh


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Key valuation assumptions

In the exhibit below, we highlight our sales and cost inflation forecasts. We expect property price appreciation in line with WPI inflation, i.e., 5%. We forecast other costs including marketing, SGA and employee costs at 5% of sales.

Base Case Assumptions (%) Discount Rate 14.0

Annual Rate Of Inflation-Sales Price 5

Annual Rate Of Inflation-Cost Of Construction 6

Other Costs – Marketing, SGA, Emp Cost (as % of sales) 5


In the exhibit below, we highlight our sales price and construction cost forecasts. Our pricing assumptions are moderate, and at a 0-10% discount to current prevailing prices.

Base Property Price And Construction Cost Assumptions

Location Prices

Rs/sqft Cost

Rs/sqft

Bangalore 4,300-10,000 3,000-3,500

Chennai 4,500-5,500 2,000-2,500

Kochi 4,500-8,500 2,500 -3,500

Hyderabad 4,200-6,000 2,000-2,500


NAV sensitivity analysis Sensitivity to our assumption of property price Obviously, our model is sensitive to changes in the

assumptions regarding property prices. For every 1% change in the base property prices, the NAV will change by approximately 2.5%.

% Change In Sale Price (10) (5) 0 5 10

NAV/share (Rs) 219 255 292 327 364

Change In NAV (%) (24.8) (12.5) - 12.2 24.6


Sensitivity of NAV to changes in sales inflation In our base case, we have assumed an annual sale

price inflation of 5% (see exhibit above). For every 100bps increase in the annual sales price inflation, the NAV will increase by approximately 4.3%.

NAV Sensitivity To Change In Sales Inflation Sales inflation rates (%) 3 4 5 6 7

NAV/share (Rs) 265 280 292 305 320

Change in NAV (%) (9.3) (4.2) - 4.3 9.7


Sensitivity of NAV to changes in cost inflation In our base case, we have assumed cost inflation to

be 6% (see exhibit above). For every 100bps increase in construction cost inflation, the NAV will change by approximately 3.2%.

NAV Sensitivity To Change In Cost Inflation Cost Inflation Rates (%) 4 5 6 7 8

NAV/share (Rs) 309 302 292 283 275

Change in NAV (%) 5.8 3.3 - (3.2) (5.7)


The combined impact of a 100bps increase in sale price inflation and cost inflation will be a NAV increase of 1.1%.

We expect property price appreciation in line with WPI inflation, i.e., 5%. We forecast other costs including marketing, SGA and employee costs at 5% of sales

For every 1% change in the base property prices, the NAV will change by approximately 2.5% For every 100bps increase in the annual sale price inflation, the NAV will increase by approximately 4.3% For every 100bps increase in construction cost inflation, the NAV will change by approximately 3.2% The combined impact of a 100bps increase in sale price inflation and cost inflation will be a NAV increase of 1.1%


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Sensitivity of NAV to changes in discount rate In our base case, we have assumed a discount rate of

14%. For every 100bps increase in the discount rate, the NAV will fall by 4.2%.

NAV Sensitivity To Change In WACC WACC Rates (%) 12.0 13.0 14.0 15.0 16.0

NAV/share (Rs) 315 303 292 280 269

Change In NAV (%) 8.0 3.9 - (4.2) (7.9)


For every 100bps increase in the discount rate, the NAV will fall by 4.2%


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Income Statement - Consolidated Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E

Net Sales 47,745 54,986 50,316 52,799 56,121

Growth (%) (13.7) 15.2 (8.5) 4.9 6.3

Material Expenses 33,541 38,582 27,598 30,297 32,431

Employee Expenses 2,933 2,952 3,968 3,960 4,209

Other Operating Expenses 2,073 2,512 4,528 3,696 3,928

EBIDTA 9,198 10,940 14,221 14,846 15,552

EBIDTA (%) 19.3 19.9 28.3 28.1 27.7

EBIDTA Growth (%) (13.7) 18.9 30.0 4.4 4.8

Other Income 872 679 2,105 2,210 2,321

Depreciation 1,637 1,547 3,188 3,328 3,635

EBIT 8,433 10,072 13,138 13,728 14,238

Interest 3,160 3,827 7,011 7,063 7,478

PBT 5,273 6,245 6,127 6,666 6,760

Tax 1,600 2,135 2,083 2,000 2,028

PAT 3,673 4,110 4,044 4,666 4,732

Minority Interest (1,095) (533) (481) (533) (541)

Share of associates 121 136 267 327 331

EO items (net of tax) 160 95 894 - -

APAT 2,539 3,618 4,724 4,459 4,522

APAT Growth (%) (36.4) 42.5 30.6 (5.6) 1.4

EPS 6.8 9.6 12.6 11.9 12.1

EPS Growth (%) (36.4) 42.5 30.6 (5.6) 1.4


Balance Sheet - Consolidated Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E

SOURCES OF FUNDS

Share Capital 3,750 3,750 3,750 3,750 3,750

Reserves 40,398 43,577 44,758 47,462 50,229

Total Shareholders Funds 44,148 47,327 48,508 51,212 53,979

Minority Interest 2,027 2,300 2,781 3,314 3,855

Secured 55,550 66,582 73,240 76,240 79,240

Unsecured 1,844 7,571 1,844 1,844 1,844

Total Debt 57,394 74,153 75,084 78,084 81,084

Deferred Taxes 1,722 1,745 1,745 1,745 1,745

Other Non Current Liabilities 1,771 1,863 2,236 2,683 3,219

TOTAL SOURCES OF FUNDS 107,062 127,388 130,353 137,038 143,883

APPLICATION OF FUNDS

Net Block 6,124 12,849 17,461 22,933 29,098

CWIP 17,952 25,081 20,033 14,985 9,937

Goodwill 3,069 3,069 3,069 3,069 3,069

Investment Property 27,030 35,430 35,430 35,430 35,430

Other Non Current Assets 15,772 17,931 16,138 16,138 16,138

Investments, LT Loans & Advances 3,551 4,346 4,846 5,346 5,846

Inventories 66,919 57,127 56,709 66,405 71,082

Debtors 10,057 9,645 10,528 11,491 12,542

Cash & Equivalents 3,864 7,385 5,412 6,060 7,762

ST Loans & Advances, Others 13,964 16,162 14,556 15,002 15,462

Total Current Assets 94,804 90,319 87,204 98,958 106,847

Creditors 9,230 13,542 16,250 19,500 23,401

Other Current Liabilities & Provns 52,010 48,095 37,578 40,321 39,081

Total Current Liabilities 61,240 61,637 53,828 59,821 62,482

Net Current Assets 33,564 28,682 33,376 39,137 44,365

TOTAL APPLICATION OF FUNDS 107,062 127,388 130,353 137,038 143,883



Page | 13

Cash Flow - Consolidated Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E

PBT before minority 5,273 6,381 6,127 6,666 6,760

Non-operating & EO items (724) (689) (1,838) (1,884) (2,321)

Taxes (3,238) (2,844) (2,083) (2,000) (2,028)

Interest expenses 3,160 3,827 7,011 7,063 7,478

Depreciation 1,637 1,547 3,188 3,328 3,635

Working Capital Change (1,259) 664 (4,501) (4,666) (2,748)

OPERATING CASH FLOW ( a ) 4,849 8,886 7,904 8,507 10,777

Capex (8,671) (5,773) (2,752) (3,752) (4,752)

Free cash flow (FCF) (3,822) 3,113 5,152 4,755 6,025

Investments and Interest income 3,745 (5,778) 1,605 1,710 1,821

INVESTING CASH FLOW ( b ) (4,926) (11,551) (1,147) (2,042) (2,931)

Share capital Issuance 0 0 0 0 0

Debt Issuance 2,359 15,907 931 3,000 3,000

Interest expenses (3,156) (3,937) (7,011) (7,063) (7,478)

Dividend 0 (541) (1,755) (1,755) (1,755)

FINANCING CASH FLOW ( c ) (797) 11,429 (7,835) (5,818) (6,233)

NET CASH FLOW (a+b+c) (874) 8,764 (1,078) 648 1,613

Closing Cash & Equivalents 3,864 7,385 5,412 6,060 7,762


Key Ratios - Consolidated

FY17 FY18 FY19E FY20E FY21E

PROFITABILITY (%)

GPM 29.7 29.8 45.2 42.6 42.2

EBITDA Margin 19.3 19.9 28.3 28.1 27.7

APAT Margin 5.3 6.6 9.4 8.4 8.1

RoE 11.1 10.2 9.4 10.4 10.0

Core RoCE 8.4 8.9 10.6 10.7 10.6

RoCE 4.5 5.2 7.3 7.0 6.9

EFFICIENCY

Tax Rate (%) 30.3 34.2 34.0 30.0 30.0

Asset Turnover (x) 0.5 0.4 0.4 0.4 0.4

Inventory (days) 512 412 413 426 447

Debtors (days) 82 65 73 76 78

Payables (days) 70 76 108 124 140

Cash Conversion Cycle (days) 524 402 378 378 386

Debt/EBITDA (x) 6.2 6.8 5.3 5.3 5.2

Net D/E 1.21 1.41 1.44 1.41 1.36

Interest Coverage 2.7 2.6 1.9 1.9 1.9

PER SHARE DATA

EPS (Rs/sh) 6.8 9.6 12.6 11.9 12.1

CEPS (Rs/sh) 11.1 13.8 21.1 20.8 21.8

DPS (Rs/sh) 1.2 1.2 1.2 1.2 1.2

BV (Rs/sh) 117.7 126.2 129.4 136.6 143.9

VALUATION

P/E 29.5 20.7 15.9 16.8 16.6

P/BV 1.7 1.6 1.5 1.5 1.4

EV/EBITDA 14.0 13.0 10.2 9.9 9.5

OCF/EV (%) 3.8 6.3 5.5 5.8 7.3

FCF/EV (%) (3.0) 2.2 3.6 3.2 4.1

FCFE/Market Cap (%) (6.2) 20.1 (1.2) 0.9 2.1

Dividend Yield (%) 0.6 0.6 0.6 0.6 0.6



Page | 14

Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

8-Feb-18 296 NEU 316

16-Apr-18 305 NEU 316

31-Jul-18 264 BUY 316

11-Oct-18 179 BUY 317

31-Oct-18 195 BUY 309

11-Jan-19 221 BUY 314

14-Feb-19 200 BUY 292

150

200

250

300

350

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

De

c-1

8

Jan

-19

Feb

-19

Prestige Estates TP

RECOMMENDATION HISTORY


Page | 15

Disclosure: We, Parikshit D Kandpal, CFA, & Kunal Bhandari, ACA, authors and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. 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Page | 16

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