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Prestige Estates Projects Ltd has become the largest listed property developer by sales with record sales of 10,382 crore in FY22 backed by robust demand for its Prestige City project in Bangalore and new launches in Hyderabad.

This financial year, the company has set a sales guidance of more than 10,000 crore, which it expects to achieve through a strong pipeline of projects. Total launches in FY22 stood at 16.77 million square feet (msf).

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Until recently, Prestige Estates was a large regional developer focused on select markets in South India. In that context, the FY22 sales performance is impressive, but the success of new launches in areas other than the South would decide its fate.

Earlier this month, the company launched residential projects in Mumbai Metropolitan Region (MMR), including Prestige City Mulund, Prestige Daffodils at Pali Hill, and Prestige Jasdan Classic. So far, the response to these projects at the launch event has been good, the management told analysts in a call.

“While the initial response to the MMR projects has been positive, continued momentum in the non-Bengaluru markets and timely and consistent launches in these markets remain the key for the next leg of growth, given 50%+ of the planned launches being skewed outside Bengaluru," analysts at Antique Stock Broking Ltd said in a report on 30 May. Also, some of the Mumbai projects would be developed along with a partner, which raises the possibility of a delay.

Prestige aims to achieve 3,000 crore of annual sales from MMR projects.

“The Mulund market is very competitive; so we feel this number is difficult to achieve even in the best-case scenario. As of now, their total inventory in MMR is not adequate enough to meet this target," an analyst with a domestic brokerage said, requesting anonymity. Prestige has the execution capabilities, but even its FY23 sales target seems aggressive and any slowdown in residential sales would further increase the company’s debt, he said.

In 2021, Prestige announced the sale of some of its commercial and residential assets in two phases to the Blackstone Group, with an aim to pare debt. The deal had a total enterprise value of around 9,160 crore. The second phase of the Blackstone deal concluded in FY22 and the remaining 250 crore is expected in June, the management said.

The management reiterated its goal of maintaining the key net debt/equity ratio at around 0.5x in the medium term. In Q4FY22, its net debt to equity ratio stood at 0.35x. Net debt fell from 4,170 crore in Q3FY22 to 3,360 crore in Q4FY22. However, analysts caution that debt would be a key monitorable as the company would need to invest in more projects to keep its sales momentum.

Under its annuity portfolio, Prestige has 29msf of office space and 5msf of retail space in various stages of implementation. Analysts at Kotak Institutional Equities said leasing in the annuity segment has been one of the areas of concern for the Street. “Sales momentum in the residential segment is likely to generate free cash; timely execution in the annuity segment will be the key focal point for further value generation," said the Kotak report dated 31 May.

Akin to peers, Prestige is also facing higher construction cost. To offset the impact of input cost inflation, it has raised prices by 7-8%.

Meanwhile, shares of the company have rallied 57% in the last 12 months, fetching investors more than double the returns of benchmark index Nifty Realty. On Monday, the shares climbed 4% to 429.15. However, a meaningful upside in the stock from the current levels would largely depend on the sales trajectory in MMR.

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