Prestige’s plans fail to build cheer
3 min read . Updated: 22 Feb 2023, 10:26 PM IST
PremiumThe company’s management expects non-Bengaluru markets to contribute ₹15,000 crore to its FY26 bookings.
Prestige Estates Projects Ltd is going full throttle on growth plans. At its analyst day meeting on Tuesday, the realty company outlined business strategies for the next five years.
In the residential segment, it aims to achieve pre-sales or bookings of ₹25,000 crore by FY26. This is more than double of FY23 guidance of ₹12,000 crore. A robust launch pipeline of 73 million square feet in the residential segment planned across geographies is seen as a key driver here.
The company’s management expects non-Bengaluru markets to contribute ₹15,000 crore to its FY26 bookings. The company’s entry in the highly competitive market of Mumbai with its Mulund project is being seen as a litmus test. The progress so far has been decent, said analysts. In Mumbai, Prestige has residential projects lined up in Byculla and Bandra and the two commercial projects in Bandra Kurla Complex and Mahalaxmi. In Mumbai, some projects are being jointly developed with local partners. While the company has a presence in Hyderabad, it is exploring new opportunities in the National Capital Region and Pune.
Among other verticals, it is eyeing an annuity income of ₹2,476 crore in the commercial segment by FY28. It aims to double its hospitality business revenue to ₹1,852 crore by FY27. Lease income from malls /retail segment is anticipated to touch ₹535 crore by FY27.
For this purpose, Prestige will incur capital expenditure (capex) of ₹17,074 crore. Consequently, net debt will rise. The management expects debt to peak out at ₹11,868 crore in FY27, with the projected debt-to-equity at 0.60x. This is a steep jump from the estimated debt of ₹4,733 crore for FY23.
“The management expects a large part of this capex to be met by residential cash flow. Expectations are that capex incurred for commercial assets will not stretch its balance sheet as these annuity assets become operational and pre-leasing momentum picks-pace," said Parikshit Kandpal, institutional research analyst at HDFC Securities. That said, these are long-term plans and will take time, he said.
Remember, it was not too long ago, when Prestige Estates was grappling with an elevated debt situation. So, it had to sell some of its assets in 2021 to the Blackstone Group to pare debt.
Investors gave a lukewarm response to the company’s elaborate growth plans, with the stock falling by 5% in the past two trading sessions.
Prestige has made an impressive debut in the Mumbai market and has traditionally demonstrated an appetite for aggressive growth, said a report by Kotak Institutional Equities dated 22 February. “As the company sets an even more ambitious target, concerns over leverage and capex against potential cash flows may crop up, keeping stock performance under check," added the report.
In general, with rising interest rates on home loans, the sentiment towards realty stocks, including Prestige Estates, has taken a hit. Secondly, with the ongoing slowdown in IT sector hiring, the extent of impact on demand on the office leasing space is yet to be seen. In CY23 so far, the Prestige Estates stock has fallen by nearly 11%, broadly in line with the benchmark index Nifty Realty’s drop. Even as Prestige is betting big on the Mumbai market and expects contribution from the region to rise to ₹5,000 crore, progress needs to be monitored. “Despite the company’s decent execution track record, it is a wait-and-watch on how this ambitious growth plans materialise," said an analyst requesting anonymity. As things stand, the stock is unlikely to see a re-rating or revision in earnings outlook in the near-term just based on its growth plans.