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Investment Rationale
Strong launch pipeline to drive sales momentum: FY23 residential sales volume was ~6.1 million square feet worth Rs 3907 crore, up ~31% and 32.4%, respectively. With strong launch pipeline of 7.9 msf over the next four quarters coupled with ~3 msf unsold inventory in ongoing projects, Brigade Enterprises Ltd. is poised to witness continued traction in residential sales momentum.
Furthermore, strong business development (three land purchase with developable potential of 5.5 msf and sales potential of Rs 6500 crore across Chennai/Hyderabad in last one year) will keep the medium-term sales trajectory healthy. We bake in overall sales value compound annual growth rate of ~15.5% CAGR over FY23-25 to Rs 5479 crore, with underlying end user demand being robust along with strong launch trajectory.
Pick up in leasing – a key monitorable; Hospitality portfolio on a strong footing:
Brigade Enterprises has an operational leasing portfolio of 8.7 msf of commercial and retail assets, of which 7.45 msf has been leased. The vacancies are largely from special economic zone space, owing to delay SEZ denotification policy. The company has an active leasing pipeline of 1.7 msf and aims to fully lease the remaining space by FY24 end.
This will boost the overall leasing segment revenues. Furthermore, hospitality portfolio (eight operational hotels with ~1500 keys) have also turned a corner and are poised to be beneficiary of major events including cricket world cup. We bake in a healthy ~14% Ebitda CAGR over FY23-25 to Rs 153 crore.
Enjoys healthy balance sheet:
Brigade enjoys a debt free residential segment, while ~90% of its debt in leasing and hospitality segment is securitised. Net debt as on Q1 stood at Rs 2012 crore (Brigade Enterprises share at Rs 1374 crore), with net debt/equity of 0.5 times.
The strong balance sheet ensures faster scalability with lower risk of leverage, going ahead.
Rating and target price
We like Brigade Enterprises given robust residential sales volumes traction as well as outlook (led by strong end user demand and new launches) and strong balance sheet.
Furthermore, we expect sustained recovery in commercial leasing/hospitality to drive overall traction in stable cashflows/growth momentum.
We maintain ‘Buy’ on the company. We value Brigade Enterprises at SoTP basis to arrive at target price as Rs 745/share. This is our high conviction midcap Idea.
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