Firm’s capacity to manage cash flows in a challenging FY21 will be vital; ‘Buy’ retained.
Brigade Enterprises’ (BEL’s) strong run continued in Q4FY20 as well with pre-sales of ~1msf (up 10% y-o-y) worth Rs 6 bn (up 25% y-o-y). FY20 sales at 4.3msf (up 44% y-o-y) were the best ever; same was the case with leasing with ~2.5msf space leased in FY20, up ~100% y-o-y. However, COVID-19 threatens to play spoilsport as it slows down leasing decisions and impacts traffic in the company’s retail and hospitality assets.
We believe BEL’s ability to manage cash flows in what’s likely to be a challenging FY21 will determine the stock’s trajectory. Pending further clarity on certain aspects of Ind-AS 115, we continue to follow the old standard. Maintain Buy with revised TP of Rs 192 ( Rs 187 earlier) as we roll forward valuations to September 2021e.
Sales performance remains healthy
BEL’s Q4FY20 new sales came in at ~1msf/Rs 6.5 bn, up 10%/25% y-o-y. FY20 sales at 4.3msf/Rs 23.8 bn jumped 44%/45% y-o-y and were the highest-ever in the company’s history. It launched 2.5msf projects in Q4FY20 (5.3msf in FY20 versus 5.8msf in FY19). Upcoming launches stand at ~4.5msf.
Annuity business braced to handle pandemic impact
The company leased out 0.2msf space in Q4FY20 (2.5msf in FY20 versus 1.2msf in FY19). It has completely leased out the 2msf WTC Chennai project and has leased ~1.2msf in the 3.2msf Brigade Tech Gardens; with leasing slowing due to COVID-19, it expects to completely lease out the latter project by mid-FY22. In the hospitality segment, average occupancy remained broadly flat y-o-y at 61% in FY20; the ongoing crisis means that focus in FY21 will be on achieving break-even. Footfalls in retail assets have started to improve; BEL is in discussions with retailers to arrive at a consensus to handle the impact of COVID-19.
Outlook: Cash flows paramount
As highlighted earlier, RERA-driven consolidation is throwing up growth opportunities for organised players such as BEL. However, COVID-19 is going to challenge the robustness of the business, especially for retail and hospitality assets. We believe BEL’s ability to manage cash flows will determine the stock’s trajectory. We maintain ‘BUY/SP’ with revised TP of Rs 192 (30% discount to NAV of Rs 275/share).