Brigade Enterprises: Axis Capital says ‘buy’; cancellations affect pre-sales in quarter

By: | Updated: May 29, 2018 2:16 AM

Collections improved, led by greater traction in ready inventory; company looks to double pre-sales in FY19

Brigade Enterprises, Axis Capital, RERA, BEL, Holiday Inn Express, SPVBEL has pre-leased 500k sf across its ongoing lease portfolio, and expects to complete pre-leasing at Brigade Tech Gardens in FY19, which is comforting.

Pre-sales declined to Rs 2.34 bn/0.43 msf (vs. Rs 2.69 billion/0.46 msf in Q3), mainly impacted by cancellations in two of its projects (totaling 0.07 msf). Collections continued to improve (Rs 4.7 billion vs. Rs 4.2 billion in Q3) led by increased traction in ready inventory. The company plans to launch ~8 msf of new projects in the next few quarters (5 msf in affordable segment), with projects in the final stages of planning and RERA approval; Brigade Enterprises (BEL) aims to double pre-sales in FY19.

BEL has pre-leased 500k sf across its ongoing lease portfolio, and expects to complete pre-leasing at Brigade Tech Gardens in FY19, which is comforting. It maintains a positive outlook on office segment (low vacancy currently) and remains committed to expanding the annuity income portfolio from ~Rs 5 billion to Rs 16-17 billion over the next 4-5 years.

Key highlights

*Annuity income remained steady at Rs 1.4 bn (up 6% QoQ) led by 19% QoQ improvement in hospitality revenue (full quarter of Holiday Inn Express and ramp-up in Holiday Inn Chennai) – with occupancy levels expected to increase further from current 30-35% levels during the year. Rental income was flat q-o-q at Rs 718 million on account of limited inventory across BEL’s lease portfolio.

Despite higher construction spend of Rs 2.5 billion (vs Rs 2.2 billion in Q3), BEL generated positive operating cash flow of Rs 357 million (Q3: Rs 380 million) due to improved collections. Net debt increased to Rs 26 billion (Q3: Rs 23 billion) on ongoing commercial capex (Tech Gardens, WTC Chennai). Net D/E stood at 0.89x (Q3: 0.81x) with cost of debt declining further to 9.21% (vs 9.28% in Q3).

Operating margin declined to 31% (vs 38% in Q3) on account of cost escalations and higher other expenses. Restructuring of hotel business (demerger) was concluded in Q4FY18. BEL is looking at divesting 25-30% stake in the SPV in FY19 (to appoint bankers by Q1).

 

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