Prestige Estates Projects

BSE: 533274
NSE: PRESTIGE

About the Company

Stock Snapshot
• Founded in 1986, the Prestige Group has firmly
 Market Cap: ₹ 15,975 Cr. established itself as one of the leading and most
successful developers of real estate in India.
 Entry Range: ₹ 385 to 420
• The company has diversified over time into a number of
related/non-related services, each of them spearheaded
 Book Value: ₹ 167 by individuals with adroit capacity.
• Led by CMD Irfan Razack and marshalled by his brothers
 Dividend Yield: 0.35 %
Rezwan Razack and Noaman Razack, the group has
completed 247 projects covering 134 million sqft, and
 Face Value: ₹ 10 currently has 45 ongoing projects covering over 53
 Equity capital: ₹ 401 Cr. million sft, 56 mn sqft of upcoming projects, and holds a
land bank of 262 acres with potential developable area
of 27 mn sqft.
 Debt to equity: 0.54 • Now with 205 landmark developments across the city,
the company has extended its expertise to major cities
across South India including Chennai, Hyderabad, Kochi,
 OPMs: 24.8 %
Mysore, Mangalore and Goa. Giving each city an
unparalleled experience with landmark malls on the lines
 EV: ₹ 18,325 Cr. of ‘The Forum’, large townships, tech parks, hotels,
luxury villas, and SEZs.
• The company already has several successful completed
 Promoter Holding: 65.5% and ongoing projects in Chennai to its credit, spanning
the commercial and retail segments.
• The Prestige Group today has become a name that is
synonymous with innovation. The company has
pioneered many landmark developments to South India.

5th September 2021 Page 1

 Residential Trends

• Demand For Affordable Housing:

Affordable housing has got a big push from the government’s

ambitious ‘Housing for All’ by 2022 programme. In the new
normal following COVID-19, as people seek a safe and secure
place to live and work from, the demand for affordable housing,
particularly in the mid-income segment, is expected to rise.
Key Triggers:
• Positive Regulations:

1) Improving financials The regulatory scenario has now become more enabling, with
measures like the reduction in reverse repo rate, extension of
2) Committed workforce
Real Estate Regulation and Development Act (RERA) deadline,
3) Visionary leadership recapitalisation of Non-banking financial companies (NBFCs)
and governance alongside the infusion of `10,000 crore from the National
Housing Bank (NHB) for the housing finance companies (HFCs) in
4) Track record of trust
order to ensure more liquidity in the sector.
and delivery
5) Wide and growing This will translate into faster completions of projects and greater
geographic presence assurance and security for home buyers. The Goods and Services
Tax Council has also slashed the levy on under-construction
6) Long-standing
houses to 5% from 12%, with a special rate of 1% introduced for
partnerships affordable homes.

The government is also said to be considering reduction on

stamp duty and registration fees to rejuvenate the real estate
sector following the impact of the pandemic.

• Rising Demand In Micro And Unexplored Markets:

The rise in per capita income as well as rapid urbanisation are

pushing the boundaries of the city; and also spurring real estate
growth in Tier-II and Tier-III cities. Large real estate brands are
tapping these markets to capitalise on the demand. The fact that
the suburban markets are relatively less impacted by the COVID-
19 pandemic and have the ability to bounce back faster on the
road to recovery shows the silver lining.

5th September 2021 Page 2

 Strategy of Prestige

• Diversified Price Points

Their residential portfolio is diversified across both the mid-

income and luxury segments. Of the 13.53 mn sq. ft. under
construction and available from completed projects, 7.96 mn
sq. ft. target mid-income buyers, rightly positioning us to
cater to the rising demand in this segment.

They are steadfastly The launch of Project Finsbury Park this year under the
growing into emerging HDFC platform is an example of this drive, and the fact that
markets such as Mumbai, the project has created a healthy interest among home-
buyers is evident from the booking figures.
NCR, Pune, Goa and other
Tier-II cities to position • Tapping Into High-Growth Potential Markets
themselves better in the
As one of the leading and most successful developers of real
market. estate in India, Prestige is at the forefront of the
consolidation taking place in the market in line with the
Their presence spans 12
RERA legislation.
locations throughout the
country. They are also steadfastly growing into emerging markets
such as Mumbai, NCR, Pune, Goa and other Tier-II cities to
position themselves better in the market.

Their presence spans 12 locations throughout the country.

Additionally, they have lined up 30+ mn sq. ft. of near-term
launches across key micro-markets of Bengaluru, Mumbai,
Noida and Hyderabad.

• On Diverse Platforms

Aware of the emerging opportunities, they had set up a mid-

income housing platform with HDFC Capital in FY 2017-18.

They adeptly used this platform to launch Prestige Finsbury

Park in the affordable housing segment and are now gearing
up for the launch of Prestige Smart City.

5th September 2021 Page 3

 • Inventory Management

They retain rigorous sales focus to monetise the bulk of their

inventory. At present, their total inventory, stands at only 27%,
including that in the ongoing premium and luxury projects and
mid- income projects.

• Prudent Debt Management

With a capital raise this year, they continue to efficiently

manage debt and keep their borrowings under check, retaining
the profitability.

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 Commercial Trends
• Strong Market

The growth trajectory in India’s commercial office sector

attained a high water mark in 2019 with corporate expansions
and ambitious growth plans led by the ITeS companies.

Net absorption grew by 19% compared to 2018. Even amid a

devastating pandemic scenario, the gross leasing number is
reportedly 30% higher vis-à-vis a year ago, although space
absorption has declined.

The work from home culture

• Supply Shortfall
has created the demand for
residential properties which Owing to the disruption in supply chain and labour supply
enforced by the consecutive lockdowns, the supply of
further supported by benign
commercial properties is expected to be affected in light of
home loan rates and the delay in construction activities.
discounts offered by the
The supply is estimated to be 15% in comparison to the pre-
developers in order to clear
COVID market situation. This augurs well for established
up the inventories. developers, who hold a ready inventory to liquidate.

• Flexible Options

Following the choices, such as distancing and the emphasis

on hygiene, there is bound to be a relook at office space
management, flexible working schedules and working
arrangements following the new arrangements that the
pandemic has engendered.

Besides, co-working spaces in major cities have seen a sharp

spike reaching ~3.44 mn sq. ft. in 2019 vis-à-vis 1.11 mn sq.
ft. in 2017.

Health, safety and wellbeing aspects are now strongly

favoured by end users; this trend is going to strengthen, even
after the flattening of the COVID-19 curve.

Sustainable and greener structures, along with automation

and the use of Artificial Intelligence and greater technology
enablement are now being preferred by investors.

5th September 2021 Page 5

 Strategy of Prestige

• Resilient Portfolio

Their office portfolio is resilient, given that it is diversified into a

broad market encompassing office space, built-to-suit office
campuses, special economic zones (SEZs), IT parks and so on.
Also, given that a majority of their projects are in Bengaluru,
which retains its primacy in the office market, they are well-
Prestige is spearheading hedged.
projects in popular locales,
• Rental Growth
and not only expanding in
Hyderabad and Chennai They expect a steady increase in rental income over the next 3-4
but also reaching wider years on account of renewals as well as new capacity additions.
They saw a record rental income during
into Mumbai, NCR and
the reporting period and with a pipeline of 24 mn sq. ft., with
Pune. many near-completions, They will continue to have a healthy
rental income.

• Solid Presence

Prestige is spearheading projects in popular locales, and not only

expanding in Hyderabad and Chennai but also reaching
wider into Mumbai, NCR and Pune.

They also have land banks in several cities, such as Hyderabad

and Mumbai in prime locations for mixed-use that will help them
scale their operations.

• Additional Facilities

The interests of the users of a property have always been their

prime concern, across all the segments they operate in,
and they will continue to provide the best facilities for the end-
users of their properties.

They are further emphasising on property upkeep and care for

end-users’ benefits following the pandemic.

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 Strategy for Retail

• Survival Of Organised Retail

Organised retail, which accounts for nearly 10% of the

market, was expected to grow to 25% in 2025. It might
undergo a temporary dip, but is expected to survive the
downturn.
Organised grocery stores and departmental outlets balanced
the crisis with emphasis on e-commerce, but has continued to
draw customers.
Prestige currently has 10
Forum malls operational with • Penetration Of Malls
FY 2019-20 exit rentals at
Shopping as an experience is a consumer preference that has
₹3,356 million, and seven
made itself felt even in Tier-II cities such as Ahmedabad,
malls in the making. Amritsar, Bhubaneswar, Chandigarh, Indore, Mysuru, and
Kochi. The penetration of malls into these areas will continue.
Forum Shopping malls have
• Long-Term Rental Growth
demonstrated record
footfalls and have high Prestige group properties have a good tenant mix with
occupancy levels. consistent trading density. A healthy operator-tenant
relationship, use of opportunities provided by the government
and financial intervention wherever necessary will see them
through the current crisis.

In the long-term, steady expansion across cities through

organic and inorganic asset acquisition strategy, asset
addition through completion of planned projects will increase
income.

• Value Addition Through Asset Acquisition

To further strengthen their annuity income portfolio and their

market share in retail sector, they have bought their JV
partner’s share in one of the most successful and popular
malls, Forum Sujana Mall, located at Hyderabad, during the
year.

5th September 2021 Page 7

 • Growth Story with a Break

India’s tourism sector has grown attractively over the years and is
estimated to reach `35 trillion by 2029, accounting for 9.2% of
the total economy.

The boom has been reflected in India’s hotel market, where an

average room rate grew by 4% y-o-y in both 2018 and 2019, a
sign that demand has outstripped supply.

The drastic demand decline following travel restrictions imposed

by governments across the world is temporary and is likely to
revive soon.
• New Initiatives
Hospitality has been a
They have signed to invest alongside their JV partner into
consistent growth area for
building one of India’s largest hotel and convention centres at
Prestige. DIAL Aero City in Delhi.

• Expansive Mode
A premium player in this
segment, they develop With their existing, ongoing and planned development in the
landmark hotels, resorts, hospitality industry, they are well placed to meet the growing
demand in this sector.
spas and service
apartments. Their hospitality recently got a leg-up with the addition of two
luxury hotels—Conrad and Sheraton—that will increase cash
flow.

• New-Age Tourister

The growth in this sector has been led by the millennial tourist
who seeks local flavour, smart design, greater technological
connectivity as well as a human touch that will give a composite
experience.

5th September 2021 Page 8

 Key Growth Drivers

Residential property market rebound strongly

 Work from home has led more people upgrades to luxury

segment.
 Factors like increasing trend of work from home amid
pandemic, low home loan rates and freebies/discounts
offered by developers driving the demand for residential
properties.
 Affordability is up with mortgage rates at a 15-year low
(<7%) and stagnant prices.
 Supply is shrinking due to lack of liquidity for smaller
developers, and further the end of the interest moratorium in
August 2020 aggravated the liquidity issues, resulting in
consolidation in the industry which will benefit the large
developers.
 The consolidation of developers is expected to have better
pricing and price appreciation for the real estate developers.
 The reduction in stamp duty rates by 3%, coupled with
completed projects saving 5% on GST front gives the
buyers nearly 8% discount.
 This combined with additional discounts given by the builder
works out to a total discount of in between 10%- 15% for the
end buyers.
 Thus, these led the affordability of the buyers, resulting in
rebound in demand for residential properties.
 The residential segment is witnessing recovery in all markets
across product segments with varying degrees from city to
city with Bengaluru leading the pack with bookings at around
70-80 % YoY in last 2-3 months.
 Markets such as NOIDA, Pune, Chennai and Hyderabad too
showing steady recovery. Mumbai too saw some large
transactions in luxurious categories especially in South-central
Mumbai.
 As per industry, the overall demand sentiment is steadily
moving upwards.
 PEPL is in better place compared to its peers as majority of its
projects in Bengaluru and Hyderabad, two of the fast moving
and robust residential markets in terms of sales velocity.

5th September 2021 Page 9

 Monetizing assets to deleverage balance sheet

• PEPL intent to deleverage its balance sheet and to fund its

ongoing projects through monetizing its rental yield
assets.
• Company has sizeable ongoing projects including 12 office
projects, 3 malls and one hotel with a total capex of Rs
3,250 crore to be incurred.
• Thus, company is currently exploring various fundraising
and monetization options for its office, retail and
hospitality projects to fund the ongoing projects and
reduce debt overhang.
Their business model is • PEPL has signed a non-binding letter of intent (term sheet
was executed on November 9, 2020) with American equity
well-diversified, with strong
major Blackstone Group to sell commercial and retail
presence in five key real properties for Rs 9,160 crore.
estate segments. • The deal comprises the sale of 21 million sq. feet of assets
including 6 completed office assets, 9 retail assets, 2
hotels and 4 under-construction offices in Karnataka,
This allows them to present Tamil Nadu, Kerala, Gujarat and other places.
• PEPL intent is to reduce debt by selling the asset and at
the customers with a
the same time generate liquidity.
multiplicity of offerings • Company plans to build twice the amount of commercial
apart from helping them property space it is selling to Blackstone group.
• The company will utilize the proceed to cut down debt by
grow their revenue streams
around Rs 5,000 crore and balance sale proceeds of Rs
across different verticals. 3,500-3,700 crore will be deployed towards capex.
• As of September 2020, company’s net debt/equity stood
at 1.5x which is expected to reduce post the deal and will
save substantially on interest cost front, thereby boosting
the net profitability of the company in years to come.

5th September 2021 Page 10

 One Of The Largest Rental Asset Portfolios In India

• PEPL has one of the largest rental asset portfolios in India

operating with office portfolio of 12.31 mn sqft and shopping
malls of 4.28 mn sqft.
• The rental assets together generate annual rental income of
Rs 1054 crore. Although the shopping malls have been
showing muted performance post COVID-19, the office
portfolio with annual run rate of Rs 715 crore continue to
show resilience with 99% collections and no drop in
occupancy.
• Company’s majority of the projects are in Bengaluru, which
retains its primacy in the office market.
• Thus, there is an expectation of steady increase in rental
income over the next 3-4 years on account of renewals.
• PEPL is one of the largest mall operators in India with 10
malls (4.28 mn sqft) operational and draw an average annual
footfall of over 75 million.
• PEPL operates its malls under the brand Forum mall and the
malls are landmarks in major South Indian cities.
• It has 9 of 10 assets located in the major cities of South
India. All of its malls are currently operational and with Unlock
5, entire mall area including multiplexes has been allowed to
operate, so the rental collection from this segment is likely to
improve in coming quarters.
• The demand in commercial space is likely to pick up on the
back of increased digitization of services and the continued
cost arbitrage of India’s IT/ ITES industry.

5th September 2021 Page 11

 Foraying into other regions
• Post the Blackstone deal closure, the company intends to
start work on its Mumbai commercial offices in Bandra Kurla
Complex and Mahalakshmi.
In collaboration with the
• Funds will also be deployed towards its Delhi Aero city
top brands in hospitality project where it is constructing a hotel with 932 rooms.
such as JW Marriott, • Company has strong presence in Bengaluru and significant
presence in other key South Indian cities such as Chennai,
Sheraton, Oakwood and
Hyderabad and Kochi.
Hilton, they have built • PEPL is entering in other major cities like NCR, Pune,
hotels in central locations, Ahmedabad and Mumbai, the most lucrative real estate
with high occupancy rates. market.
• Thus, entering into other regions, company is reducing its
They recently added two concentration risk.
• However, entering into other markets require capital and for
luxury hotels, Conrad and
that the Blackstone deal is key to its success.
Sheraton, that will boost • Develop modern and smart office spaces in prime localities
their annualised revenue of India’s metros.
further. • With a strong presence in the southern markets, they are
now expanding their footprint to top locations in Mumbai,
NCR and Pune.

Financial Highlights

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5th September 2021 Page 13
 Key Risks
 Any Persistent slowdown in economy will hurt the demand for
residential as well as commercial properties, which could be a big
negative for the company.
 Delay in fund raising will hurt its project expansions which in turn
lead higher inventory, blocking of capital and leveraged balance
sheet.

Our View
 Demand scenario in all the business segments continue to be strong
going forward.
 The company is one of the largest real estate developers in India
having portfolio of residential, commercial, malls & retail properties.
The consolidation in the  The work from home culture has created the demand for
sector augur well for big and residential properties which further supported by benign home loan
organized developers like rates and discounts offered by the developers in order to clear up
PEPL as it has strong the inventories.
presence in Southern market  Further, the outbreak of COVID-19 led liquidity crisis for small
especially in Bangalore, the developers and as the loan moratorium has ended in August 2020,
key real estate market in the situation has been further aggravated resulted in big
India. consolidation in real estate space.
 The consolidation in the sector augur well for big and organized
developers like PEPL as it has strong presence in Southern market
especially in Bangalore, the key real estate market in India.
 Monetizing of its asset will help PEPL to reduce its balance sheet
leverage and also to fund its ongoing projects.
 Substantial debt reduction will result in cost saving for company on
interest cost front.
 We do see earnings expansion along with a re-rating
potential in coming quarters leading to brighter days ahead
for the company.

5th September 2021 Page 14

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