Prestige’s plans fail to create happiness

In the residential segment, it aims to get pre-sales or bookings 25,000 crores by FY26. This is more than double of FY23 guidance 12,000 crores. A robust launch pipeline of 73 million sq ft in the planned residential segment across geographies is seen as a key driver here.

The company’s management expects the non-Bengaluru market to contribute 15,000 crore for its FY26 booking. The company’s entry into the highly competitive Mumbai market with the Mulund project is being seen as a litmus test. Analysts said progress so far has been good. In Mumbai, Prestige has residential projects in Byculla and Bandra and two commercial projects in Bandra Kurla Complex and Mahalaxmi. In Mumbai, some projects are being developed jointly with local partners. While the company has a presence in Hyderabad, it is exploring new opportunities in the National Capital Region and Pune.

In other verticals, it is eyeing annuity income of 2,476 crore in the commercial segment by FY28. It aims to double its hospitality business revenue 1,852 crore by FY27. Lease income from malls/retail segment expected to touch Rs. 535 crore by FY27.

For this purpose, the capital expenditure (capex) of Prestige will be 17,074 crores. As a result, net debt will increase. Management expects debt to peak 11,868 crore in FY27, at an estimated debt-to-equity of 0.60x. That’s a huge jump from the estimated debt of 4,733 crore for FY23.

“The management expects a major portion of this capex to be met from residential cash flows. Expectations are that capital expenditure incurred for commercial assets will not stretch its balance sheet as these annuity assets have become operational and pre-leasing momentum has picked up,” said Parikshit Kandpal, Institutional Research Analyst, HDFC Securities. He “These are long-term plans. And it will take time,” he said.

Remember, it was not too long ago when Prestige Estates was grappling with an inflated debt position. Hence, it had to sell some of its assets to the Blackstone Group in 2021 to reduce the debt.

Investors reacted indifferently to the company’s broader growth plans, with the stock down 5% over the past two trading sessions.

A February 22 report by Kotak Institutional Equities said Prestige has made an impressive debut in the Mumbai market and has traditionally demonstrated an appetite for aggressive growth. “As the company sets an even more ambitious target, leveraging against potential cash flows and concerns over capex may rise, stock performance could be kept under check,” the report said.

In general, with interest rates on home loans rising, sentiment towards realty stocks including Prestige Estates has been affected. Secondly, with the ongoing slowdown in hiring in the IT sector, the impact on demand for office leasing space is yet to be seen. In calendar year 2020 so far, Prestige Estates stock has declined about 11%, roughly in line with the decline in benchmark index Nifty Realty. Even Prestige is betting big on the Mumbai market and is expecting contribution from the region to rise 5,000 crore, progress needs to be monitored. An analyst requesting anonymity said, “Despite the company’s good execution track record, it remains to wait and see how these ambitious growth plans materialize.” Outlook in the near term only based on its growth plans.