Prestige Estates presales hit record high in FY23; can this real estate stock deliver return?

Prestige Estates Projects achieved record-breaking annual presales and the highest-ever collections in FY23, with about 60 per cent of sales coming from Bengaluru, followed by Mumbai (21 per cent) and Hyderabad (14 per cent). Bookings of Rs 12,900 crore surpassed Prestige's own guidance of Rs 12,000 crore for the year. The affordable segment accounted for most of the sales, analysts said as they stayed positive on Prestige's prospects given strong pre-sales performance and attractive launch pipeline.

Analysts gave thumbs up to the company's initiative to foray into non-South India markets and have price targets between Rs 540 and Rs 675 on the stock, suggesting a 11-38 per cent potential upside.

Prestige Estates Projects is targeting 25 per cent growth in pre-sales in FY24. In FY24, Prestige Estates Projects plans to launch the next phase in Prestige City Mulund, Prestige Ocean Towers and Prestige Nautilus in Mumbai. In Hyderabad, it plans to launch Prestige City and Prestige Rock Cliff. Also, in Chennai, Pallava Gardens will be launched, which should start contributing this fiscal, Elara Securities said.

Motilal Oswal Securities has a target of Rs 675 on the stock. HDFC Institutional Equities sees the stock at 630. Elara pegs Prestige at Rs 606. Foreign brokerage Jefferies finds the stock worth Rs 560.

The company launched 16.5 million square feet (msf) of residential projects in FY23 and intends to launch at least the first phase of all the projects in the 76 msf pipeline, with a saleable area of 21 msf. It has guided for Rs 15,000 crore of pre-sales in FY24, up 21 per cent YoY.

"The 25 per cent pre-sales jump in FY23 was driven entirely by new geographies of Mumbai and Hyderabad, as Bangalore sales declined. Strong launch pipeline in new locations should drive similar 25 per cent growth in FY24. Stake purchase in Mumbai commercial properties adds to the large Rs 17,500 crore investments in lease assets; with a monetisation likely only when execution gains visibility," Jefferies said while maintaining 'Buy' on the stock with a revised target price of Rs 560 from Rs 550 earlier.

Jefferies said the jump in pre-sales should start reflecting in much higher profitability, but likely from FY26.

DB Realty deal, Q1 debt

Prestige Estates recently executed an agreement with DB Realty to acquire the remaining 50 per cent stake  at BKC 101 X and Prestige Liberty towers, Mahalaxmi, for Rs 1,200 crore. The company has valued the transaction based on rentals of Rs 300 per sqft and a cap rate of 9.5 per cent. The company expects to generate rentals of Rs 350 per sqft.

The company will now own 100 per cent stake in both these assets and will lead to Rs 1,000 crore of additional rental income, Motilal Oswal said.

"Prestige Estates is set to bear the total cost of Rs 7,000 crore (Rs 4,200 crore of construction, Rs 1,800 crore of premium, Rs 350 crore of rehab and Rs 300 crore of NOC), of which, Rs 3,000 crore is already paid out. With the majority of the consideration already paid out, we do not expect any significant increase in net debt, as a result of this transaction, in 1QFY24," it said while suggesting a target of Rs 675 on the stock.

While the recent stake increase in key office assets in Mumbai has resulted in an increase in net debt, Motilal said the enhanced cash flows will support the company in meeting its business development spending and commercial capex requirements without putting strain on the balance sheet.

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