Leverage levels, leasing trajectory for annuity assets and sale of stake in hospitality arm to govern showing; ‘Buy’ retained
We attended the investor meet organised by Brigade Enterprises (BEL) and also visited a few of the company’s major projects. Key takeaways are: strong project pipeline of ~10msf (~6msf launches in FY19) with focus on affordable & mid-income housing (93% of upcoming launch area); robust office/ retail asset portfolio with FY22 exit rentals (BEL’s share) estimated at ~Rs 5.3 bn (~Rs 3 bn currently); and burgeoning hospitality portfolio, expected to touch ~1,800 keys over the next couple of years (~1,200 currently). We believe the company’s ability to manage leverage levels, leasing trajectory for under-construction assets and value unlocking in the hospitality arm will be key stock catalysts. Maintain Buy with a target price of Rs 252.
Set for robust growth
BEL’s realty segment’s sales have been on a roll with 80% plus y-o-y growth in FY19; Q1FY20 sales were the highest-ever for the company. The company seems set to maintain this momentum with ~10msf of upcoming projects in the next four quarters (~6msf launches in FY19). Its sharpening focus on affordable and mid-income housing is evident from the fact that this segment comprises ~93% of upcoming launch area (compared to 86% in unsold inventory).
Steady ramp-up in annuity portfolio
The company’s lease business is steadily ramping up with its share of exit rentals likely to touch ~Rs 5.3 bn by FY22e
(~Rs 3 bn currently). Leasing momentum is strong with management expecting to lease out its two marquee assets—the 3.2-msf Brigade Tech Gardens and the 2-msf WTC Chennai—over the next three-four quarters. BEL’s hospitality portfolio, currently at ~1,200 keys, will touch ~1,800 keys over the next couple of years. Management is in talks with various entities for a minority stake sale in the hospitality arm, which will lead to value unlocking and provide growth capital.
Outlook and valuation: Strong growth potential; maintain Buy
As highlighted in our comprehensive sector report, “Real Estate — The Charge of the Consolidating Brigade”, RERA-driven consolidation and the ongoing liquidity crisis are enhancing growth opportunities for organised players such as BEL. We believe timely launch of planned projects, further ramp-up in sales momentum, leasing trajectory of annuity assets and fund-raising exercise in the hospitality arm will determine the stock’s trajectory. We maintain ‘BUY/SO’ with a target price of Rs 252.