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Stock pick of the week: Why analysts are bullish on Prestige Estates

Aggressive plans to launch new projects, new GST rates for under-construction properties, possibility of paring its debt and reasonable valuations have made Prestige analysts’ top pick.

, ET Bureau|
Mar 25, 2019, 06.30 AM IST
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The recent cut in GST for under-construction properties should boost new real estate project launches.
Despite weak numbers in the third quarter of 2018-19—revenue and net profit fell 22% and 36% respectively, year-on-year (y-o-y)—analysts are getting bullish on Prestige Estates Projects for several reasons. A key reason is the significant fall in its stock price over the past one year. Also, Prestige has a strong portfolio of operational rental assets and this segment has been cushioning the risks from its residential segment. Its leasable assets, as of December 2018, have a potential to earn an annual income of around Rs 1,000 crore in 2019-20.

Delay in new launches—only 3.6 million square feet of new launches in the first nine months as against the expected 10 million square feet in 2018-19—was a key concern for the market. But Prestige now plans to launch commercial and retail properties aggressively over the next 5-7 years and its launch pipeline is expected to hit the guided value of 10 million square feet in 2019-20. The projects expected to be launched include Prestige Smart City, Nirvana, Finsbury, among others. Prestige Smart City at Sarjapur in Bengaluru, a joint venture with HDFC Capital, is the company’s first affordable housing project.

Analysts’ views
Hold: 1
Buy: 18

The recent cut in the Goods and Services Tax (GST) should aid these new launches. The GST rate for underconstruction properties in the affordable housing segment has been slashed to 1% from 8%, effective 1 April. Similarly, for other under-construction properties, the rate has been cut from 12% to 5%. The possession-ready properties will continue to be free of GST. Due to the reduction in GST, the tax difference between under-construction and possession-ready properties has reduced and this will boost demand for under-construction properties. With a developable land bank of around 30 million square feet, Prestige is expected to significantly benefit from any demand revival in under-construction properties.

High debt and the resultant high interest payout, however, has been a big concern for Prestige. Its gross debt rose from Rs 8,227 crore in September 2018 to Rs 8,524 crore in December 2018. Analysts though are hopeful that this will fall in the next 3-4 quarters: 43% of the debt is related to the residential segment and the company is expected receive around Rs 1,700 crore from buyers upon completion of these projects. Prestige has also completed Rs 2,500 crore worth of projects and their monetisation will help the company reduce debt.

ET Realty compared with Sensex and ET Realty Index. Stock price and index values normalised to a base of 100.
Source: ETIG & Bloomberg

Selection Methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.

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