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.