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TheAsianInvestor    


Mumbai, India

As a long-term investor, I focus on undervalued stocks having potential to generate market-beating returns. Focus is entirely on multi-bagger stocks that are being categorized as small-cap or mid-cap.

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BRIGADE

Comments: 0 | Likes: 0 | Current Price: ₹ 989.15


Brigade Enterprises Limited: Growth likely to stem from recovery in economic activities

Focus on digital marketing, online booking of apartments and collections yielded results in difficult times when India was under lockdown. Strong balance sheet is an added advantage and Brigade is in a good position to manage operations. Business obligations should be met by maintaining adequate liquidity. In real estate, it has strong pipeline of ongoing projects of ~17.03 Mn sft.


About the company:

Brigade Enterprises Limited is one of India’s leading property developers, having over 3 decades of experience in building positive experiences for all stakeholders. The company is among few developers enjoying reputation of developing Grade A commercial properties. Since inception, the company has completed over 250 buildings of 70 million sq. ft of developed space in residential, offices, retail and hospitality sectors across 7 cities.

Growth Enablers of Brigade Enterprises Limited

  • Reduction in real estate debt and improved bookings: The company’s revenues in 1Q23 came in at INR920 crores in comparison to INR391 crores, exhibiting a year-over-year growth of 135%. Its real estate business saw pre-sales of ~1.2 million sft in 1Q23, a 61% increase year-over-year. Sales value came in at INR8,139 Mn in Q1 FY23, exhibiting 70% year-over-year growth. The company saw reduction in its real estate debt by INR59 crores, while average cost of debt was 7.75%. It has a strong pipeline of upcoming projects of 9.5 million sft, with key projects operating in Bengaluru, Hyderabad & Chennai. On a consolidated basis, its PAT came in at INR646 million in comparison to loss of INR859 million.
  • Management of expenses should support: Because of lockdown imposed due to COVID-19, construction activity saw an impact, while real estate segment saw lower revenue recognition. Due to lockdown, travel restrictions and weak consumer sentiment, there was underperformance in malls and hotels. Impact was also seen on collections and was, to some extent, mitigated by management of capital expenditure and reduction in overheads. In 1Q23, the company saw remarkable turnaround in hospitality business during, with revival of primary segments including rooms, F&B, MICE and banquet events. Revenue and occupancy have exceeded pre-covid levels, while ARR is back to pre-covid levels. Hospitality business has achieved EBITDA of 32% during 1Q23, back to pre-covid levels.
  • Growth seen in FY22: Brigade Enterprises Limited saw revenues of INR3,066 crores for FY22 against INR2,010 crores in FY21, exhibiting 52% year-over-year growth. Earnings before Depreciation, Interest, Tax and Amortization (EBITDA) came at INR833 crores in FY22 against INR532 crores in FY21, being 56% increase. The company performed fairly well in FY22 across 4 SBUs – Residential, Office, Retail and Hospitality – despite challenges. In FY22, the company’s overall cash flows were healthy as it generated INR11.3 billion of operating cash surplus because of strong residential sales and rental income. The company saw capital expenditure of INR2.4 billion in FY22 which was allotted for completion of Tech Gardens, Bengaluru and World Trade Centre, Chennai office projects and other annuity/hospitality projects.

  • Highest ever sales value in FY22: FY22 exceeded all yearly performances the company has achieved till date. It saw highest-ever sales value and collections despite COVID-19 and significant jump in construction cost. During FY22, the company launched 10 new projects aggregating total of 3.79 million sft, of which only 0.14 million sft was for commercial space and rest was in residential space.
  • Industry dynamics should provide much needed support: Growth of real estate sector is complemented by growth in corporate environment and demand for office space and urban and semi-urban accommodations. Indian real estate sector should reach market size of USD1 trillion by 2030 from USD120 billion in 2017 and contribute 13% to GDP by 2025. Retail, hospitality, and commercial real estate have seen significant growth, offering much-needed infrastructure for growing needs. Office space has been driven mostly by growth in ITeS/IT, BFSI, consulting and manufacturing sectors. In 2019, demand of office sector with commercial leasing reached 69.4 msf.
  • Recovery underway: COVID-19 pandemic impacted India’s real estate market. Residential sector saw a significant hit as lockdown measures across large cities in India impacted housing sales. This was seen because of suspension of home registrations and home loan disbursement was slow. However, sector’s recovery is underway as a result of an increase in house sales, new project launches, and increasing demand for new office and commercial spaces. Growth continues to stem from higher industrial activities, rapid urbanisation, better income levels and strong policy support. Government continues to provide a boost to affordable housing construction, interest subsidy, service tax exemption, etc.

 

Growth seen in all of its business segments 

Brigade Enterprises Limited compounded its revenue at ~6.68% over FY16-20, while it compounded its EBITDA at ~8.05%. In future years, growth should predominantly be supported by upbeat consumer sentiments, opening of economy, and normalisation of business activities. Over FY16-20, Brigade Enterprises compounded its dividend at ~10.67%, exhibiting a relentless focus on providing returns to shareholders.

In FY22, its real estate segment saw highest ever sales record of 4.6 million sft of FY21, with net new bookings coming at 4.7 million sft after cancellations, worth INR3,023 crore, exhibiting 9% growth year-over-year in value terms. Total collections came at INR3,152 crore. During FY21, the company launched 3.65 million sft in residential space. Average realisation increased 7% over FY21 to INR6,411 per sft. The company’s best-performing projects in Bengaluru included Brigade Cornerstone Utopia and Brigade Eldorado, while its projects in Hyderabad and Chennai saw significant value and volume.  The company is positive about its outlook for residential business, as it continues to focus on land acquisition in primary markets of Bengaluru, Chennai and Hyderabad.

Performance of its hospitality business saw some impacts due to state-wide restrictions as a result of 3rd wave of COVID-19 in January and mid-February of this year. Post that, portfolio exhibited impressive revival as there were sharp recoveries in occupancies, ARRs, F&B revenue, banquet events (both corporate and social), leisure and group travel. Occupancy touched 64% and ARR was 78% of pre-COVID levels during Mar 2022. Hospitality business saw positive trend as international flights resumed and there was an uptick in corporate movement and rescheduling of mega-events. Portfolio ARR increased 18% in FY22 against FY21. During 4Q22, ARR was 72% of pre-COVID levels while portfolio occupancy recorded encouraging growth reaching 94% of pre-COVID levels. In FY23 and beyond, its hospitality business should show consistent improvement.

During FY22, the company saw revival in demand in leasing vertical and leased ~1 million sft with active pipeline of ~1 million sft. Office space renewals came at ~0.5 million sft at 14% escalation. Retailer sales consumption exceeded pre-COVID levels after mid-February FY22 as F&B and multiplexes saw better performances because of big box office releases. Retail revenue grew 64% during FY22 in comparison to FY21. Lease rental business segment recorded revenue of INR5,965 million, making 19% of total revenues. EBITDA for FY22 was INR4,013 million, while EBITDA margin was 67%.

Disclosure:

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure:

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure legality:

I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.

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