INSUBCONTINENT EXCLUSIVE:
Nirmal Bang Institutional Equities has a buy call on Brigade Enterprises with a target price of Rs 290.
The current market price of Brigade
Enterprises is Rs 200.25.
Time period given by the brokerage is one year when Brigade Enterprises price can reach the defined target
Investment rationale by the brokerage:
Commercial and retail portfolio (leasable area) expected to expand from 2.6mn sqft in 1HFY19 to 8mn
Strong occupancy level of nearly 100 per cent in the existing commercial portfolio indicates strong ability of BEL to attract customers
Improvement in demand for space together with a declining vacancy rate will maintain demand for new rental properties of BEL in the next few
In the retail sector, recent data indicates that while Grade A malls have more than 90 per cent occupancy rate, the occupancy level for
Grade B and C malls can be as low as 40 per cent
We expect additions in retail space from 0.97mn currently to 1.26mn sq ft in FY25E will help improve cash flow of the company.
Favourable
demand-supply balance in hotel sector will be a further impetus to growth: The company has 1,158 operational rooms spread across 6 hotels
Further, 4 hotels are under construction with a total capacity of 678 rooms
Given the rising occupancy and room rates, we expect the improvement in profitability will also be one of the pillars driving earnings
to rise from 1.4x in FY18 to 1.6x in FY21E
Strong portfolio of operating rental assets and the sharp increase expected in the next six years may improve cash flow and thus limit the
rise in net debt.
Strong brand: BEL has built a strong brand in the past few decades of its existence
This has helped the company to mitigate the impact of weak environment in the residential segment
Further, its strong brand also led the company to attract clients for rental properties.
Attractive valuation; recommend Buy rating with a
1x FY21E NAV based target price of Rs 290: Our optimism is driven by its attractive valuation which is supported by stable residential sales
despite a weak environment, a strong portfolio of operational rental assets which reduces the risk associated with the residential segment
and a planned increase in commercial and retail properties over the next five to seven years.
Key risks: 1
Any further slowdown in the residential segment
Slower than expected increase in operational rental assets.
