Stock To Buy: Motilal Oswal Bets On This Real Estate Stock, Sees 44% Upside

Brokerage firm, Motilal Oswal has suggested buying the stock of Prestige Estate Projects for a 44% upside. That is a steep upside from the current levels.

Prestige Estate sees strong bookings

Prestige Estate Projects reported sales bookings of Rs 104 billion in FY22 and became the first company to breach Rs 100 billion pre-sales mark. In FY23, the company has guided for Rs 120 billion of pre-sales, of which, it has already clocked Rs 65 billion in 1HFY23

"Prestige Estate Projects stock has not seen any major re-rating despite continued strong performance in its residential business. In our opinion, this is likely due to concerns over leverage given a heavy capex cycle ahead of us. We expect CY23 to be a defining year for Prestige Estate Projects as it looks to grow its pre-sales on a strong base, provide growth visibility, and allay concerns of rise in leverage beyond a comfortable level," Motilal Oswal has said in its report.

Huge pre-sales seen in key markets for the company

Motilal Oswal has said that Prestige Estate Projects aspires to generate Rs 70-80 billion of pre-sales from Bengaluru, Rs 30-35 billion from Mumbai, Rs 10-15 billion each from Hyderabad, NCR, and Pune, and Rs 10 billion from Chennai and other southern markets.

"Additionally, the company has Rs 20 billion of capital pending to be deployed from the HDFC platform which will be utilized over the next 12 months and in case required, the company will also roll out its Rs 25 billion AIF. Thus, business development spends are likely to be taken care of internally," Motilal Oswal has said.

Surplus cash flows sufficient to fund capex

Excluding the spending on business development, according to Motilal Oswal Prestige Estate Projects is expected to generate Rs 20-30 billion of free cash available for capex. "The company currently has Rs 145 billion of pending capex to be spent on ongoing (Rs 70 billion) and upcoming (Rs 75 billion) office, retail, and hotel projects. "Strong cash flow generation will ensure a large part of existing construction debt will be paid off once completion and will be replaced by debt on upcoming assets. That said, we do not expect net debt to increase by more than Rs 20-25 billion, leading to net debt-to-equity of 0.5-0.6x," Motilal Oswal has said.

Stock price target of Rs 675 for stock of Prestige Estate

Prestige Estate Projects 25msf launch pipeline (over 12 months) and strong business development plans will provide clarity on further scale-up in residential business and robust cash flow generation. "While Prestige Estate Projects continues its aggressive stance on commercial strategy, a large part of its capex is likely to be funded from internal accruals, capping the net debt at not more than 0.5-0.6x of equity. We reiterate our BUY rating with a target price of Rs 675 and rate it as our top pick in real estate sector for CY23," the brokerage has said. The stock of Prestige Estates was last trading at Rs 471 on the NSE.

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 check with certified experts before taking any investment decision.