Prestige Estates witnessed a surge in unsold inventory to ₹16,000 crore by the conclusion of December, despite a robust lineup of imminent launches. Moreover, the company is poised for substantial capital expenditure, earmarking ₹14,600 crore to bolster its office, retail, and hospitality assets, portraying a steadfast commitment to strategic expansion.
Prestige Estates Projects Ltd: Strong Pre-sales and Expansion Plans
Prestige Estates Projects Ltd showcased a commendable performance in the third quarter of FY24. The pre-sales for the quarter totaled ₹5,326 crore, contributing to a cumulative ₹16,333 crore for the first nine months of the fiscal year. The launch of The Prestige City project in Hyderabad significantly bolstered the Q3 pre-sales. The company aims to conclude FY24 with pre-sales reaching ₹20,000 crore and has devised plans to introduce housing projects with a gross development value of approximately ₹42,000 crore by the end of FY25.
Inventory Management and Financial Outlook
Despite the promising pipeline, investors should monitor the total unsold inventory, which rose to ₹16,000 crore by the end of December. The pace of inventory reduction plays a vital role in shaping the earnings outlook and stock performance. Additionally, careful attention to the debt and cash flow trajectories is necessary, considering the company’s significant capital expenditure plans. Prestige Estates is fervently enhancing its annuity portfolio and is set to invest ₹14,600 crore in developing its office, retail, and hospitality assets.
Debt Concerns and Market Diversification
Increases in debt levels are anticipated due to the ambitious capex on business development and annuity assets, as highlighted in Nuvama Research’s report. While healthy cash flows are expected from the residential segment, the substantial annuity capital expenditure and business development needs may lead to a rise in Prestige Estates’ leverage. The company has also expanded into new markets such as the Mumbai Metropolitan Region (MMR) and the National Capital Region (NCR), with the launch of projects such as Prestige Ocean Towers Mumbai and Prestige Bougainvillea Gardens. However, analysts caution that the company may face intensified competition from established players in these markets due to different pricing dynamics.
Stock Performance and Outlook
Prestige Estates witnessed a remarkable 154% surge in its shares in 2023. Throughout the year, the stock experienced a 5% decline, trailing behind the Nifty Realty index’s 10% return. The upcoming launch pipeline for Q4FY24 is relatively modest, with one launch scheduled in Bangalore. Continual success in sales from ongoing projects becomes vital in this context. Investors may be cautious about the company’s elevated short-term debt, potentially prompting profit booking. Yes Securities has indicated that the stock currently offers limited scope for valuation expansion following its substantial increase.
