This Real Estate Stock Surges 109% In 1 Year, ICICI Securities Sees More Upside

The Brigade Group is one of India's top real estate developers with deals in the Residential, Commercial, Retail, Hospitality, and Education sectors having projects in Bengaluru, Mysuru, Mangaluru, Chikmagaluru, Hyderabad, Chennai, Ahmedabad, and Kochi. On the NSE, the stock has risen from Rs 249.60 on March 19, 2021 to Rs 523.20 on March 17, 2022, 3:30 pm IST, a return of 109.62 percent in a year. The stock is up 5.90 percent year to date (YTD) and has risen 42.46 percent in the last six months. The stock has risen 5.48 percent in the last month and 15.89 percent in the previous five days. ICICI Securities has revised its recommendation to BUY from ADD, with a revised target price of Rs598/share, up from Rs555 before.

Investment rationale

According to the brokerage "With waning of Covid cases leading to reopening of offices/malls and resumption in international travel, we expect the company's annuity and hotel business to see a significant leg up from Q1FY23. We expect BRGD's share of rental NOI to grow at 25% CAGR over FY21-24E to Rs5.7bn driven by incremental lease out of 2.4msf of vacant area across assets by Mar'23 in Bengaluru and Chennai."

ICICI Securities has noted "Further, we expect the company's hotel business to clock a marginal EBITDA of Rs0.3bn in FY22E, Rs0.8bn in FY23E and Rs1.1bn in FY24E vs. FY20 EBITDA of Rs0.9bn. For the residential business, we model for flattish sales value of Rs28.1bn in FY22E but expect sales bookings of Rs36.5bn in FY23E and Rs43.4bn in FY24E driven by new launches. Key risks are prolonged weakness in office leasing and slowdown in residential demand."

Buy for a target price of Rs 598

The brokerage has claimed "We upgrade our rating to BUY from ADD with a revised target price of Rs598/share (earlier Rs555) as we roll forward to Mar'23E NAV, assigning 30% business development premium to the company's residential business. For annuity business, we have factored in a 30% loss in mall rentals for FY22E and all incremental leasing in Tech Gardens/WTC Chennai to commence from Q1FY23. We expect BRGD's share of rental NOI to double from Rs2.9bn in FY21 to Rs5.7bn in FY24E."

ICICI Securities has also highlighted that "With hotels being deeply cyclical sector, we expect recovery to be visible only in FY23E and estimate a marginal EBITDA of Rs0.3bn in FY22E, Rs0.8bn in FY23E and Rs1.1bn in FY24E. We model for flattish residential sales value of Rs28.1bn in FY22E owing to fewer launches but expect sales bookings of Rs36.5bn in FY23E and Rs43.4bn in FY24E driven by a launch pipeline of 6-7msf in FY23E and ~15msf of new land bank additions over the same period."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.