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FY14 - guidance achievable, stress on cashflows

n EBITDA margins at 23.6% disappoint, down 535bps QoQ;

May 22, 2013

Rating Accumulate CMP Rs174

Previous Reco Accumulate Target Price Rs205

-6/NA 6,095 20,062

PEPL guides 30% FY14. Collections at OCF excl L&A get better QoQ. Gross SA debt increases by Rs 770mn QoQ collections in FY14 against Rs 31bn & Rs 19.6bn FY13A. Exit rentals is expected at Rs 3.2bn in FY14 against Rs 2.3bn YoY new land acquisition. Mgmt.s hint of higher growth would require new land parcels could be a concern going forward set guidance is achievable, but overhang of increase in capital for growth curbs our valuations

n PEPL guides for Rs 37bn of sales booking & Rs 23bn of

EPS Chg FY14E/FY15E (%) Target Price change (%) Nifty Sensex

n Co. spends ~Rs 3bn in Q413 and ~Rs 5.5bn in FY13 towards

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

n Maintain Accumulate rating with TP of Rs 205. We believe

1M 0 -5

3M -3 -7

6M 12M 10 1 63 30

EBITDA margins disappoints, Collections and Cash from Operations ex. L&A remain healthy
PEPL reported topline of Rs 5.6bn in Q4FY13, 9 % above our estimates. EBITDA at Rs 1.3bn was 6% below our estimates . EBITDA margins stood at 23.6%, 535bps lower QoQ. Lower EBITDA was mainly due to 126% QoQ increase in Employee Cost, which is due to higher variable pay. Adjusting the same to previous quarter levels EBITDA margins were down 230bps QoQ which was mainly due to increase in construction cost for projects nearing completion. Company guides for EBITDA margins of 30% for FY14. Excluding Loans & Advance in estimation, PEPLs Cashflows from Operations has increased from Rs 1.08bn to Rs 1.29bn QoQ. While, including the same it stood at negative Rs 1.3bn against positive Rs 1.1bn QoQ. Gross debt at SA level increases by Rs 770mn QoQ to Rs 14.8bn while net debt decreases by Rs 225mn to Rs 10bn QoQ.

Relative price chart

200 Rs % 50 180 38

160

26

140

14

120

100 May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

-10 May-13

Prestige Estate (LHS)

Rel to Nifty (RHS)

Source: Bloomber g

Stock Details
Sector
Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

Real Estate PEPL IB 3,500 10 350 195/ 96 61/ 1,094 261,665 0.8

PEPL deploys Rs 3.6bn of QIP money in acquiring land bank and stake in two associate companies
PEPL has cash outflow of Rs 4.1 bn in Q413 of which ~Rs 1bn was spent in acquiring stake in associate cos. The balance ~Rs 3bn, we understand, was spent towards land acquisition in Bangalore, Chennai & Hyderabad which will have total saleable area of ~10msf. Going forward, management did not give any guidance for new land acquisition but did indicated that for growth in FY15 there would sizeable acquisition in new cities Chennai, Hyderabad and Kochi.

PEPL guides for Rs 37bn of sales booking in FY14; it is 30% of aggregate value of unsold inventory and FY14 launches
PEPL plans to sell ~8msf in FY14 valued at Rs 37bn. The major part of these sales will come from planned new launches of 14msf in FY14. Considering the unsold inventory of 7.1msf valued at Rs 52bn and value of new launches at ~Rs 73bn, PEPL would have to sell 30% of total value on offer to attain its target. The company expects to attain Rs 37bn of sales booking in ratio of 60:40 in new launches and on-going projects. In this ratio, Rs 22bn of sales would come from new launches which are 30% of total planned launches and balance Rs 15bn from unsold inventory of Rs 52bn which is again 30%. Financial Snapshot (Consolidated)
YEMar Net Sales 10,523 19,476 23,542 34,042 EBITDA (Core) 2,966 5,791 6,921 9,877 (%) 28.2 29.7 29.4 29.0 APAT 826 2,860 3,419 5,381 EPS EPS RoE (%) 3.9 11.7 11.8 16.4 P/E 69.0 21.3 17.8 11.3

Shareholding Pattern (%)

Mar'13 Dec'12 Sep'12 Promoters FII/NRI Institutions Private Corp Public
Source: Bloomberg

75.0 15.5 7.5 1.4 0.5

80.0 11.0 6.7 1.6 0.7

80.0 11.8 6.2 1.2 0.8

(Rs mn)
EV/ EBITDA 24.4 13.7 11.3 7.9 P/BV 2.7 2.2 2.0 1.7

(Rs) % chg 2.5 8.2 9.8 15.4 -51.7 224.6 19.5 57.4

Tejas Sheth tejas.sheth@emkayglobal.com +91-22-66242482

FY12A FY13A FY14E FY15E

Emkay Global Financial Services Ltd.

Result Update

Emkay

Prestige Estates

Prestige Estates

Result Update

Exit rental are expected to be Rs 3.2bn; current lease status suggest atleast Rs 2.9bn exit rate in FY14
PEPL earned rental income of Rs 2.2 in FY13 with annualised exit rate for Q4FY13 at Rs 2.3bn. Company expects the exit rate to increase to Rs 3.2bn by FY14 and Rs 5bn by FY15. Companys 7 projects with total leaseable area of 1.68msf (PEPLs share) will get completed in FY14 which will have additional rental income of Rs 1.2bn. Of these, 0.8msf (~47% area) is pre-leased which can add rental income of Rs 0.53mn, taking the total exit rate to atleast Rs 2.86bn. The balance 53% of the area, which is 0.9msf, is expected to be leased during FY14 and included in overall target of 2.0msf of leasing during the year.

Exhibit 1: Collections at Rs 19.6bn in FY13 Vs Rs 13.3bn in FY12

6000 4500 3268 3000 1500 2250 3280 Rs mn 4556 4241 5050 5076 5328

Exhibit 2: CFO excl. L&A at Rs 4.5bn in FY13 Vs Rs 2.9bn in FY12

1445 1456 1544 1289 1080 1100 596 600 100 360

1600

Rs mn

0 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 -400

Q112

Q212 -390

Q312

Q412

Q113

Q213

Q313

Q413

Source: Company, Emkay Research

Source: Company, Emkay Research

Exhibit 3: Guidance for FY14 seems to be achievable (reasons stated above) Parameters Launches Sales Booking Sales Booking Collection New Leasing Rental Income Exit Rental Income Annualised
Source: Company, Emkay Research

Unit msf msf Rs mn Rs mn msf Rs mn Rs mn

FY12 A 10.0 4.9 21127 13354 1.4 1648 1870

FY13 A 10.4 6.0 31221 19695 0.5 2229 2289

FY14 E 14.0 6.2 37000 23000 0.5 3200

Var FY13 4% 22% 48% 47% -67% 35% 22%

Var FY14 35% 3% 19% 17% 11% -100% 40%

Emkay Research

May 22, 2013

Prestige Estates

Result Update

Key Financials (Consolidated) Income Statement

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Raw Materials Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY12A 10,269 -33.5 7,556 0 844 6,712 2,966 -20.8 28.2 605 2,361 22.4 342 1,193 1,510 626 41.5 884 -46.9 8.4 -58 826 0 826 826 -51.7 FY13A 19,305 88.0 13,685 0 1,444 12,241 5,791 95.2 29.7 682 5,109 26.2 636 1,489 4,256 1,314 30.9 2,942 232.8 15.1 -82 2,860 0 2,860 2,860 246.3 FY14E 23,392 21.2 16,621 0 1,660 14,961 6,921 19.5 29.4 838 6,083 25.8 300 1,557 4,826 1,407 29.2 3,419 16.2 14.5 0 3,419 0 3,419 3,419 19.5 FY15E 33,892 44.9 24,165 0 1,910 22,255 9,877 42.7 29.0 1,060 8,817 25.9 300 1,448 7,670 2,288 29.8 5,381 57.4 15.8 0 5,381 0 5,381 5,381 57.4

Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY12A 3,281 18,229 21,510 2,668 18,637 0 18,637 119 42,934 19,026 3,565 15,462 5,217 1,740 36,964 15,662 8,490 2,386 10,329 97 16,449 13,938 2,511 20,515 0 42,934 FY13A 3,500 23,923 27,423 2,620 23,717 483 24,200 110 54,353 29,774 4,246 25,528 3,891 1,750 46,427 17,408 8,010 4,880 15,488 640 23,242 21,698 1,544 23,185 0 54,353 FY14E 3,500 26,850 30,350 2,620 19,791 483 20,274 278 53,521 35,102 5,085 30,017 2,234 1,092 44,759 17,112 8,926 2,732 15,488 500 24,580 22,124 2,456 20,179 0 53,521 FY15E 3,500 31,740 35,240 2,620 20,606 483 21,089 490 59,438 44,522 6,144 38,377 2,282 1,092 48,184 16,708 11,515 3,972 15,488 500 30,496 27,750 2,747 17,687 0 59,438

Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY12A 914 605 1,193 0 -1,058 -626 1,028 -6,039 -5,011 596 938 -4,505 2 3,461 -1,193 -461 0 370 2,181 -1,296 3,679 2,386 FY13A 3,449 682 1,489 0 -185 -1,314 4,121 -9,422 -5,301 807 -9 -8,624 3,544 5,564 -1,489 -491 0 -130 6,997 2,494 2,386 4,880 FY14E 4,376 838 1,557 0 1,025 -1,407 6,389 -3,670 2,719 450 658 -2,562 0 -3,926 -1,557 -491 0 0 -5,974 -2,148 4,880 2,732 FY15E 7,220 1,060 1,448 0 3,944 -2,288 11,382 -9,468 1,914 450 0 -9,018 0 815 -1,448 -491 0 0 -1,124 1,240 2,732 3,972

Key Ratios
Y/E Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 28.2 8.4 6.6 3.9 7.6 2.5 4.4 65.6 1.2 69.0 39.8 2.7 7.1 24.4 0.7 0.7 5.2 628.8 29.7 15.1 11.8 11.7 13.2 8.2 10.1 78.4 1.2 21.3 17.2 2.2 4.1 13.7 0.7 0.7 3.2 343.0 29.4 14.5 11.8 11.8 13.3 9.8 12.2 86.7 1.2 17.8 14.3 2.0 3.3 11.3 0.7 0.6 2.5 270.5 29.0 15.8 16.1 16.4 17.7 15.4 18.4 100.7 1.2 11.3 9.4 1.7 2.3 7.9 0.7 0.5 1.7 147.1 FY12A FY13A FY14E FY15E

Emkay Research

May 22, 2013

Prestige Estates

Result Update

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Emkay Research

May 22, 2013

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