Prestige Estates: Keep one eye on launches, another on debt

The launch pipeline for Q4FY24 is relatively soft, with one launch scheduled in Bangalore, so sustaining sales from ongoing projects is important.
The launch pipeline for Q4FY24 is relatively soft, with one launch scheduled in Bangalore, so sustaining sales from ongoing projects is important.

Summary

  • Despite a robust launch pipeline, unsold inventory inched up to 16,000 crore by the end of December. The company also has big capex plans, looking to spend 14,600 crore to develop its office, retail and hospitality assets.

Prestige Estates Projects Ltd put up a decent show in the December quarter (Q3FY24). Pre-sales for the quarter stood at 5,326 crore, taking the total for the first nine months of FY24 to 16,333 crore. This was largely due to the launch of The Prestige City project in Hyderabad, which contributed a large chunk of Q3 pre-sales.

The company is confident of closing FY24 with pre-sales of 20,000 crore, and plans to launch housing projects with a gross development value of around 42,000 crore by the end of FY25.

Despite the robust pipeline, investors need to keep tabs on its total unsold inventory, which inched up to 16,000 crore by the end of December. As such, the pace of inventory exhaustion is crucial for earnings outlook and the stock price.

That apart, debt and cash flow trajectories remain crucial, given the company’s big capital expenditure (capex) plans. Prestige is aggressively building up its annuity portfolio and looking to spend 14,600 crore to develop its office, retail and hospitality assets.

“Capex on business development and on annuity assets is likely to lead to a build-up in debt, going ahead. While the residential segment will generate healthy cash flows, the sizable annuity capex and business development needs mean that Prestige Estates’ leverage shall increase," Nuvama Research wrote in a report. At the end of December, the company’s net debt was sequentially flat at 6,981 crore.

Prestige Estates has been diversifying into new markets such as the Mumbai Metropolitan Region (MMR) and the National Capital Region (NCR). The first tower of Prestige Ocean Towers Mumbai was launched in Q3FY24 and Prestige Nautilus is likely to be launched in Q1FY25. The company will also launch its first project in NCR, Prestige Bougainvillea Gardens, in Q1FY25.

Given the different pricing dynamics of these markets compared to the company’s core market of south India, analysts caution that it could face competition from established incumbents in these markets.

Prestige’s shares rallied by a massive 154% in 2023. So far this year, the stock has dropped by about 5%, lagging the Nifty Realty index’s 10% return. The launch pipeline for Q4FY24 is relatively soft, with one launch scheduled in Bangalore, so sustaining sales from ongoing projects is important.

Concerns of elevated near-term debt could also be bothering investors and prompting them to book profits. According to Yes Securities the stock currently has no scope for valuation expansion after the sharp run-up.

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