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Brigade Enterprises Ltd
Realty | NSE : BRIGADE
Brigade Enterprises (BEL) offerings include Grade-A commercial property, affordable to ultra-premium housing in real estate business and operational marquee hotel assets in hospitality segment in South India
The volume trajectory is healthy with strong end user demand and IT sector tailwind remain. Retail and hospitality recovery is on track. BEL has comfortable debt-equity and sufficient liquidity from operational commercial assets. While rising interest rate scenario can be a hurdle if it extends sharply for longer period, end user demand tailwind is strong.
We maintain BUY with an SoTP target price of ₹ 550/share.
We see continued healthy traction in residential real estate while a sharp recovery in rental assets (malls/office) is expected to be seen, as the full-fledged economic activity kicks in FY23. Overall momentum will also boost building materials players in the tiles/ply space, along with structural shift in the form of higher market share for organised players as they expand to Tier 3 cities and beyond. Our top bets in real estate are Phoenix Mills (BUY rating; target price: ₹ 1,320) and Brigade Enterprises (BUY rating; target price: ₹ 550) while our top bets in the building materials space would be Kajaria Ceramics (BUY rating; target price: ₹1165) and Century Ply (BUY rating; target price: ₹ 660).
Malls were the most impacted segment amid Covid disruptions in FY21, FY22, as they had to provide rental waivers amid closures. However, FY23 is likely to be a normalised year with rental resetting also witnessing uptick after two years of lull. Similarly, office absorption was also impacted owing to work from home/hybrid work. Note that, as per Cushman and Wakefield, Grade A offices net absorption across India’s top seven cities in CY20 and CY21 was at ~20 million sq feet (msf) vs. ~42 msf in CY19. We highlight that as per Cushman and Wakefield, Grade A offices net absorption across India’s top seven cities have increased by 65% YoY to 6.msf in Q1CY22 as “back of office” led re-occupancies have started. We expect this trend to continue and drive overall absorption for rental assets players. Brigade expects majority of yet to be transacted commercial area (2.1 mn sq ft) to get leased by FY23-end. Also, the company expects to launch 2 mn sq ft towards commercial lease and for sale project during FY23. Thus, Brigade is expected to be a key beneficiary of office re-occupancies while Phoenix Mills will be a quasi-play on consumption recovery through malls.
The residential segment saw strong growth in sales volumes/value in FY22 with top eight listed developers reporting ~50% growth in sales value at ₹ 45766 crore. We note that this was driven by strong launch pipeline in FY22, which was up ~63% YoY at 54 msf. We note that, going ahead, in FY23, strong launch pipeline is stacked up with ~78 msf of launches. Thus, sales volume traction is likely to be maintained. Overall pricing growth guidance has been 8-10%, mainly to counter cost inflation. However, cooling commodity prices and higher interest rates may likely result in lower price hike. Most importantly, most top players have deleveraged through strong collections and are sitting at comfortable liquidity, implying lesser balance sheet challenge for them. IT hub based players like Brigade would also benefit from strong salary growth seen in its key market. Building material segment leaders such as Kajaria Ceramics and Century Ply would also benefit from sustained traction in residential segment.
Nifty Real estate index has outperformed broader markets and is up ~12% in the last one year vs. flattish Nifty in the same period. Key supportive factors for residential demand has been improved affordability, consolidation of supply, superior execution by top developers driving trust. Similarly, rental assets would also face better absorption as the normalised activity (office re-occupancies/malls operations & consumption) have kicked in. We continue to stick with players where we see healthy balance sheets, strong tailwinds from segment such as malls, commercial, hospitality as well as consumption led growth.
| Particulars (₹ crore) | Amount |
|---|---|
| Market Capitalization | 24,058.6 |
| Total Debt (FY22) | 4,932.5 |
| Cash (FY22) | 559.4 |
| EV | 14,540.2 |
| 52 week H/L (₹) | 1,108.0/482.0 |
| Equity Capital | 230.8 |
| Face Value (₹) | 10.0 |
| Particulars | FY19 | FY20 | FY21 | FY22 | 5 yr CAGR (FY17-22) | FY23E | FY24E | 2 yr CAGR (FY22-24E) |
|---|---|---|---|---|---|---|---|---|
| Net Sales | 2,972.8 | 2,632.2 | 1,950.0 | 2,998.8 | 8.2 | 3,468.3 | 3,844.8 | 13.2 |
| EBITDA | 789.7 | 663.2 | 472.0 | 766.3 | 5.9 | 1,011.0 | 1,182.9 | 24.2 |
| EBITDA Margin(%) | 26.6 | 25.2 | 24.0 | 25.6 | - | 29.1 | 30.8 | - |
| Net Profit | 239.9 | 130.6 | -46.0 | 82.8 | 2.5 | 174.6 | 234.4 | 68.3 |
| EPS (|) | 11.4 | 6.2 | -2.2 | 3.6 | - | 7.6 | 10.2 | - |
| P/E(x) | 38.8 | 71.3 | ||||||
| EV/EBITDA(x) | 17.3 | 21.6 | 30.6 | 17.7 | - | 13.9 | 11.5 | - |
| RoE(%) | 11.1 | 5.7 | -2.0 | 2.8 | - | 5.8 | 7.6 | - |
| RoCE(%) | 11.8 | 7.6 | 4.1 | 6.2 | - | 9.4 | 11.6 | - |
| - | - | - | - | - | - | - | - | - |
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