Prestige Estates’ pre-sales outlook upbeat, but watch out for debt
2 min read 16 Feb 2023, 12:44 PM ISTPrestige plans to incur a capex of Rs15,700 crore for its annuity portfolio which comprises commercial, retail and hotel assets
PremiumInvestors in shares of Prestige Estates Projects Ltd are in an upbeat mood, despite weak bookings momentum for the realty developer in the December quarter. On Thursday, the stock rose nearly 7% on the NSE. In the last two trading sessions, the stock has risen by 9%.
In Q3, the company achieved pre-sales volume of around 2.9 million square feet (msf), a 36% sequential decline. Consequently, pre-sales in value terms also declined by 28% sequentially to Rs252 crore. The sequential pre-sales activity was impacted by delay in launches of new projects in Mumbai and Bengaluru markets due to delay in getting regulatory approvals.
Even so, the management is confident of surpassing its FY23 pre-sales guidance of Rs12,000 crore, of which Mumbai’s contribution is expected to be at Rs2,700 crore, the management said in an earnings call held on Wednesday. According to analysts, the company is on track to exceed its FY23 pre-sales target, considering that it has already crossed Rs9,000 crore mark in 9MFY23.
Mumbai is among the newly forayed markets for Prestige Estates, with Bengaluru still being a large contributor to the company’s pre-sales. Remember, making a mark in the Mumbai market was seen as a litmus test for the company. In Q3FY23, Mumbai contributed around 19%, to total pre-sales, while Bengaluru contributed 55%, the management said. In Q3, the company launched seven projects of 4.06msf in Bengaluru, Mumbai, and Calicut regions. The company entered into the Calicut market in Q3FY23.
While the company’s launch pipeline is robust, investors would do well to keep an eye on its capex and leverage. Prestige plans to incur a capex of Rs15,700 crore for its annuity portfolio which comprises commercial, retail and hotel assets. “Prestige is pursuing an aggressive growth strategy for its annuity portfolio. The sales momentum moderated in 3QFY23, but the residential segment is likely to generate strong free cash; timely execution in the annuity segment will be the key focal point for further value generation," said analysts at Kotak Institutional Equities.
Net debt increased by 3% sequentially in Q3 and the net debt-to -equity ratio stood at 0.42x, compared to 0.41x in Q2FY23. The management aims to maintain net debt-to-equity ratio at around 0.5x in FY23. “Net debt levels for the capex spend will remain a key monitorable and pre-leasing (especially MMR) will help provide cash flow visibility," said analysts at JM Financial Institutional Securities Ltd. Apart from that a general slowdown in residential sales due to rising home loan rates remains a key risk for the sector.
Meanwhile, the company has scheduled an analyst meet on 21 February, 2023 to share its three and five-year growth targets.
