Maintain buy on Prestige on four-pronged growth model: Motilal Oswal

By: | Published: June 9, 2015 12:14 AM

Our recent interaction with Prestige Estate (PEPL) top management highlights its evolving approach to sustain growth by combating concerns of base effect.

Our recent interaction with Prestige Estate (PEPL) top management highlights its evolving approach to sustain growth by combating concerns of base effect. Management is banking on (1) Consolidation at home: new micro location entry in Bangalore to drive housing market share to 20% versus 15% now, (2) Build-Acquire: buying out partners/peers stakes in select assets to drive inorganic expansion, (3) Selective expansion: newer markets like Pune and Mumbai with a cautious pace to combat any future risk of home market saturation, and (4) Better process management: Implementation of SAP to establish better control on growing scale.

On the back of strong track record of meeting/beating guidance over past 3-4 years, management outlaid yet another encouraging (yet realistic) targets in operational scale up. The growth plan comprises R5,750-6,000 crore total annual presales in FY16 and R8,000-10,000 crore by next 3-4 years, annual launches and delivery of 12-15msf and 15-20msf respectively and annual leasing scale up of 1.5-2msf to 3-4msf gradually as currently no major completed assets are under offer.

The stock trades at 17x FY17E EPS, 2x FY17e BV (RoE of 14.5%), and at an EV of 10x FY17e cash Ebitda. We maintain ‘buy’ on the stock with a target price of R320, implying 25% upside.

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