Buy This Mid Cap Real Estate Stock For 34% Potential Upside: Geojit

Geojit in its recent report on Prestige Estates Projects Ltd (PEPL) suggests buy the stock of the company for a target price of Rs 611 apiece to get 34% gains. PEPL is India's largest developer in terms of booking value for FY22. Much of PEPL's growth is fueled by projects in Bengaluru and Hyderabad. The company has embarked on to Mumbai and NCR region and targeting aggressive growth in these geographies. It is a mid-cap Real Estate company having a market capitalization of Rs 18,355.46 crore.

Stock Outlook

The Current market price of the stock is Rs 457.90 apiece. The 52-week low is Rs 379 apiece recorded on 20 June 2022, and the 52 week high is Rs 554 apiece recorded on 18 January 2021. Considering the stock's current market price and the estimated target price, the stock could surge around 34% in 12 months.

Returns over the Past 5 Years

Over the week, the stock moved down 3.44%. Whereas, in the past 1 and 3 months, it gave 2.56% negative return and 15.08 positive return, respectively. Over the past 1 year, it gave 7.54% positive return. In the past 3 & 5 years, it gave 52.48% and 75.71% positive returns.

Robust residential pipeline

PEPL clocked a pre-sale of Rs.3,012 crs in Q1FY23, Up by 310% YoY. Area sold increased to 3.63 msf from 1.1msf in Q1FY22 and collection doubled to Rs. 2,146 crs during the same period. The company has 29 ongoing (40.3msf) and 31 upcoming projects (60msf), that are expected to drive the sales momentum and have the potential to generate free cash flow of ~Rs.20,000 crs.

Steady cashflow backed by increased annuity

Annuity income is expected to reach Rs.1,000 crs (Rs.250crs in FY22) in next 2-3 years by adding 7.18 msf to the lease portfolio (~3msf in FY22). Bengaluru and Mumbai hold the major development share, being IT/ Finance hub. In the near future, Rs. 860crs of rental income is likely to be added from its 15 ongoing projects, and the share in the sales mix will increase from 4% to 9%. Higher leased assets will improve the EBITDA margin and provide steady cashflows to PEPL. Mumbai projects will start construction by Q2FY23 and are expected to be completed in 4 years. The annuity potential of these projects is Rs. 1,300 PA.

Healthy Balance sheet

PEPL strengthened its balance sheet by reducing the Net debt ratio to 0.35 (FY22) from the average level of 1.13 during FY19-21.The improvement is primarily attributed to the debt deduction for the assets sold to Blackstone in FY20 and used this cash inflow to settle a few other debts. PEPL has stated that it intends to keep its debt-to-equity ratio around 0.5 in the future.

Valuation

According to the brokerage firm, "Given its strong balance sheet, robust launch pipeline, industry consolidation, best affordability in the last two and half decades, weak residential cycle in the recent years has provide solid foundation for a rebound. Hence, we value the company at 2.3x FY24E adjusted book value and recommend to BUY with a target price of Rs. 611."

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.