On Fast Track to Growth

Funding boost for expansion and a strong launch pipeline is set to drive revenues, ensuring momentum for high growth.

Prestige Properties Limited that is expanding into new markets to sustain pre-sales growth momentum, has achieved bookings of INR163b in 9MFY24, up 81 percent YoY and surpassed its initial full-year guidance of INR160b. With INR160b of ongoing project inventory as of Dec’23, the company is on track to achieve its revised pre-sales guidance of INR200b in FY24.

While laying out the roadmap to achieve INR250b of pre-sales by FY26, the company is eyeing  six key markets  of Bengaluru, MMR, Hyderabad, NCR, Pune, and Chennai  that would play a vital role in reaching the target.

Since then, it has scaled up to its target in Bengaluru and made successful foray into Mumbai and Hyderabad. Recently, a luxury residential project- Somerville in Whitefield  was launched in Bengaluru. But contribution from other three markets remain negligible. Motilal Oswal Brokerage  expects this to change soon as the company has built a healthy pipeline in Chennai and NCR and is targeting to launch a few projects in FY25.

In NCR, Prestige Estates recently acquired 62.5 acres of primeland in Indirapuram for Rs 468 crore for building an integrated township , ‘The Prestige City’ over 10 million sq ft.This along with two upcoming projects (one each in Noida and Delhi) has a combined revenue potential of INR140b and can act as a strong growth lever for the company. Similarly, the company has 6msf of pipeline across two projects in Chennai and  it is at an advanced stage of acquiring a large project in Pune.

Prestige’s overall project pipeline stands at INR700b (including inventory at its existing projects) and can enable it to sustain its strong growth momentum in the near term. Motilal Oswal Brokerage  expects Prestige Estates’  pre-sales to rise to INR260b by FY26 at a CAGR of 15 percent over FY24-26E.

Prestige Estates’ rental portfolio  currently has 11msf of operational office and retail portfolio with a total rental potential of INR4.3b. In FY24, the company is slated to deliver 8msf of office assets (3.6msf delivered in 3Q), which will scale up the exit rentals to INR7b at Prestige Estate’s share. With 21msf of ongoing office and retail projects and additional 23msf of upcoming projects, rental income is expected to rise to INR38b once these projects are delivered by the end of FY28. Prestige Estates  has a balance capex outlay of INR137b to be spent on above projects over the next four years, indicating an annual cash outlay of INR30-35b. The success of the company’s expansion strategy hinges on leasing its two large office assets in Mumbai, which have the potential to generate a rent of INR20b.

Prestige Estates is expected to  start generating positive Free Cash Flow(FCF) from FY26.  In 9MFY24, it generated Operating Cash Flow (OCF)of INR37b and spent INR53b in new land investments, capex and interest costs leading to net debt increasing by 15b to INR70b as of Dec’23.  Annualized OCF run-rate has risen to INR60b and with further scale-up in the residential and commercial segment, it is expected  to increase to over INR95b by FY26, which will be sufficient to meet its INR80-85b worth of investment in land and capex.As such the  net debt is likely to increase by INR20-25b through FY25 and peak out at INR90-95b, resulting in net debt-to-equity of 0.7x, which should not be a concern for the company operating at such scale.

Prestige Estates has announced its entry into a residential platform deal where Abu Dhabi Investment authority (ADIA) and Kotak AIF will invest INR20b in the company’s upcoming residential projects.    Investment will be utilized for development of four greenfield projects already identified from the company’s upcoming residential pipeline and are located at Bengaluru, MMR, NCR and Goa. These projects have development potential of 14msf with estimated top-line of INR180b

The monetization of hospitality portfolio can lead to value unlocking by Prestige Estates.The company currently operates 1,500 keys of hospitality portfolio, which is set to double over the next three to four years. Once stabilized, the segment can generate revenue of INR18b (PEPL share) vs. INR9b currently.The company  management is currently evaluating to monetize its hospitality portfolio, which will lead to some value unlocking. Moreover, the move can also knock off INR9b of gross debt from its books and alleviate some of the cash flow stress associated with the INR17b balance capex in the hospitality segment.

Prestige Estates provides future growth visibility on its residential segment through the expansion of its project pipeline and with advances on its key commercial projects, further value accretion is imminent.The company which booked sales of Rs 16300 crore in 9MFY24 , is on track to hit its FY 24 sales guidance of Rs 20000 crore.