Markets
Office, hospitality segments hold key for Brigade Enterprises march
Summary
Brigade plans to expand its portfolio by 5.2 million sq ft across office and retail projects, with a cumulative rental potential of ₹500 crore upon competition.
The south India focused real estate developer, Brigade Enterprises Ltd, is betting big on its office leasing and hospitality segments. The optimism is being driven by key metrics showing improvement. In the commercial segment, the office occupancy rose to 95% in the December quarter (Q3FY24). Office leasing at 0.5 million square feet space was the highest seen in a post-covid quarter.
Office leasing is improving, especially in Bengaluru due to robust demand from global capability centres, the management said in an earnings call. The company expects to complete the crucial Brigade Twin Tower office project in Q1FY25 and targets to lease it fully by FY25-end.
In the retail segment, footfalls rose 8% year-on-year (y-o-y) aided by healthy traction in the jewellery, F&B, and salon spaces. Brigade plans to expand its portfolio by 5.2 million sq ft across office and retail projects, with a cumulative rental potential of ₹500 crore upon competition.
Brigade’s hospitality segment saw occupancy level at 73%, up 500 basis points y-o-y.One basis point is equivalent to0.01%.Average room rate improved to ₹6,503 per day, up 7% y-o-y and was higher than pre-covid levels of ₹5,400. Healthy domestic demand, revival in foreign tourist arrivals and MICE (meeting, incentives, conferences and exhibitions) are expected to aid further momentum. The company currently has 1,474 keys and intends to add another 1,000 keys to its hospitality portfolio.
These developments will entail a new capex of ₹3,000 crore over FY25-28. So, timely completion would aid its profitability outlook. However, in a scenario of delays, the commercial and hospitality capital expenditure could put pressure on cash flows.
“While Brigade’s operational commercial and hospitality assets are performing well, any weakness in the upcoming projects could cause stress to the company’s cash flows and debt servicing," said Nuvama Research report.
Brigade’s net debt increased to ₹2,111.5 crore in Q3FY24 from ₹1,592 crore in Q2FY24. With that, the net debt to equity ratio also rose marginally to 0.69x.
Its residential segment pre-sales are solid with the first nine months of FY24, pre-sales at ₹3,769.5 crore, 90% of FY23 pre-sales. In Q4FY24, the company is gearing up to launch around 2.6 million sq ft of projects with a gross development value potential of ₹1,800 crore across its existing projects in Bengaluru.
Brigade continues to provide strong visibility until FY26, given the progress made on business development over the last few years, points out Motilal Oswal Financial Services. The brokerage remains watchful of the project additions in its focused markets for further growth visibility.
In the last one year, Brigade’s shares have rallied by almost 100%. The shares closed at ₹951.90 on Tuesday.Investors seem to be factoring a good share of the positives, for now.
