Motilal Oswal Reiterates Buy On This Multibagger MidCap Real Estate Stock, Claims 57% Upside

Motilal Oswal reiterates its BUY rating to Brigade Enterprises Limited with a revised target price of Rs 720/share. According to the given target price, it is likely to give a return of up to 57% from its current level. Brigade Enterprises is a mid-cap company that operates in the real estate sector. It has a market cap of Rs 10,690.21 crore.

Stock Outlook & Returns

The current market price (CMP) of the stock stands at Rs 461.40/share on NSE, down 1.06% from the previous close. The stock hit the 52 week high on 12 September 2022 at Rs 585/share. The 52 week low of the stock is Rs 376.15/share, which was recorded on 12 May 2022.

In terms of return on investment, the stock has given negative returns the over the past 1 year. It fell 1.86% in 1 week, 6.7% in 1 month, and 9.27% in 3 months, respectively. In the past 1 year, it has fallen 2.92% negative return. However, in the past 3 years, it has given 113.91% multibagger return. It gave a 124.87% multibagger return in the past 5 years.

Demand momentum intact; 13msf of launches over the next 12 months

Management indicated that demand momentum continues to remain intact as witnessed through steady progress on sustenance sales as well as strong response to recent launches. As per the management, affordability continues to remain intact despite 200bps rise in mortgage rates as monthly EMIs at INR83,000-84,000 (for a mortgage of INR10m) are still below its peak of INR100,000 in 2015-16. Average household income for homebuyers in Bengaluru has doubled to INR4.5-5.0m over the last five years, and hence, affordability is still not a challenge until interest rate reaches a psychological barrier of double digits. While the company has been largely focused on sustenance sales over the last six quarters, management expects the launch intensity to improve from hereon. BEL is slated to launch 13msf of projects across Bengaluru (8.5msf), Chennai (3.5msf), and Hyderabad (1msf) over the next 12 months. The company remains confident of delivering 15-20% CAGR in pre-sales volumes over the next three years and is gearing up its launch and project pipeline to meet the target. We expect the company to deliver 17% CAGR in pre-sales over FY23-25 to 7msf at a value of INR48b.

 

Focus on business development to remain intact

Over the last 12 months, the company has added 10msf of residential projects. Currently, BEL has ~40msf of residential projects under pipeline, of which, 13msf is slated to be launched over the next 12 months. The remaining 27msf of projects under pipeline provides visibility for three-four years. Management generally prefers a visible pipeline of five-six years, hence, focus on business development will remain intact, especially in its core markets of Bengaluru and Hyderabad. In Chennai, BEL is targeting a revenue of INR60b over the next five years from its residential projects alone and looking to consolidate its presence across verticals.

 

Confident of fully leasing its commercial portfolio by Sep’23

Over the last 12 months, the company has leased 1.2msf of space in its operational commercial portfolio. While the leasing traction has been slower than expected, the company expects to fully lease out its portfolio by Sep'23. We expect the rental income to record a 15% CAGR to INR8b by FY25. Brigade Twin tower (1.2msf) is expected to be delivered over the next 18 months and will take the rental income to INR10b and EBITDA to INR7.5b. However, its contribution is not considered for valuation right now. Additionally, it is evaluating one more commercial project (2.0msf) along with mixed use development in Chennai TVS land (0.3msf), which provides growth visibility in rental portfolio even beyond FY25.

 

Valuation and view

Motilal Oswal said, "We maintain our estimates across the residential and commercial segment as the company reiterated its 15-20% volume growth guidance in residential segment and remains confident of fully leasing its commercial segment by 1HFY24. "We derive a value of INR60b for its commercial business (INR5.5b EBITDA valued at 8.5% cap rate) and INR25b for its hospitality business (INR1.5b EBITDA at 17.5x EV/EBITDA). And at its current valuation, it implies INR35-40b for its residential business, which would be equal to NAV of its existing residential project pipeline, indicating zero growth value. Thus, pick-up in business development activity by BEL will lead to re-rating in valuation for its residential segment. We reiterate our Buy rating with an unchanged SOTP-based TP of INR720, implying a 55% upside potential." 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal 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 consult with certified experts before making any investment decision.