jpm_prestige_estate_proj_2013-07-29_1175420

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Asia Pacific Equity Research29 July 2013

Prestige Estate Projects LimitedOverweightPREG.BO, PEPL IN

Another quarter of operating performance beatPrice: Rs129.00

Price Target: Rs250.00

India

Property

Saurabh KumarAC

(91-22) 6157-3590

[email protected]

Bloomberg JPMA KUMAR

Gunjan Prithyani

(91-22) 6157-3593

[email protected]

J.P. Morgan India Private Limited

YTD 1m 3m 12mAbs -30.5% -17.3% -23.0% 16.2%Rel -30.6% -17.4% -24.1% 1.9%

Prestige Estate Projects Limited (Reuters: PREG.BO, Bloomberg: PEPL IN)

Rs in mn, year-end Mar FY12A FY13A FY14E FY15ERevenue (Rs mn) 10,523 19,476 26,211 34,804Net Profit (Rs mn) 826 2,860 4,016 5,659EPS (Rs) 2.5 8.2 11.5 16.2Net debt to Equity 63.6% 60.4% 52.7% 38.8EPS growth (%) (51.7%) 224.5% 40.4% 40.9ROE 3.9% 11.7% 13.8% 17.0P/E (x) 51.2 15.8 11.2 8.0P/BV (x) 2.0 1.6 1.5 1.3Source: Company data, Bloomberg, J.P. Morgan estimates.

Company DataShares O/S (mn) 35Market Cap ($ mn) 76Price (Rs) 129.0Date Of Price 29 Jul 13M - Avg daily volume (mn) 0.23M - Avg daily value (Rs mn) 41.33M - Avg daily value ($ mn) 0BSE30 1,9748.1Exchange Rate 59.0

See page 5 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singfactor in making their investment decision.

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Price Performance

PREG.BO share price (Rs)

BSE30 (rebased)

PEPLs 1Q earnings of Rs867M (+76% Y/Y) were in line withexpectations. Revenue recognition was ahead of estimates, though this wasoffset by slightly lower margins. However, there was a beat on operatingperformance, with 1Q pre-sales at Rs10.2B (+89% Q/Q), collections atRs6B (+15% Q/Q) and rental income witnessing a pickup on newcompletions. Overall, we think the company is well on track to achieve itsfull-year guidance across key operating and financial metrics.

In-line Q1; net debt increases Q/Q: Q4 earnings of Rs867M were inline with our expectations. While revenues of Rs5B (+127% Y/Y) were5% ahead of our estimates, the impact on earnings (+76% Y/Y) wasoffset by slightly lower margins (1Q EBITDA margin at 26% vs. JPMe28%). Sales mix changed, with a high contribution in 1Q from the low-margin Tranquility (Bangalore) project. Attributable net debt increasedby Rs2B Q/Q, to Rs18.9B (net D/E 0.6), likely on account of landpayments and rental capex. Debtors from competed projects came downby ~Rs400M Q/Q.

Pre-sales performance remains solid: 1Q pre-sales stood at Rs10.2B(1.8msf) vs. Rs5.4B in Q4, thanks to high launch activity and steadydemand trends in the Bangalore market. The company achieved 28% ofits full-year pre-sales target (Rs37B) in 1Q. Collections also picked up,to Rs6B (vs. Rs5.3B in Q4). PEPL launched 4.1msf of projects inBangalore in the quarter, and the launch pipeline for FY14 remains

strong, with projects planned in Chennai, Hyderabad and Bangalore. Theoverall full-year FY14 launch target is 14msf. This should help thecompany sustain the strong pre-sales performance, in our view.

Rental business on track to reach Rs5.5B+ by end- FY15: Exit rentalincome for the Jun-Q increased to Rs2.8B from Rs2.3B last quarter, withthe completion of Vijaya Mall (Chennai) and additional building (B-7) inCessna business park (Bangalore). The company delivered 2.5msf (PEPLstake 1.5msf) of commercial space in 1Q. Given recent completions andlocked-in commitments in ongoing projects, we believe PEPL is well ontrack to achieve its exit rental target of 3.5B by end-FY14 and Rs5.5B byend- FY15.


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Asia Pacific Equity Research

29 July 2013Saurabh Kumar(91-22) [email protected]

Company Description Valuation and EPS sensitivity metrics NAV impact (%) impa

Prestige Estate Projects Ltd. is one of the leadingproperty developers in South India, with a trackrecord of 24 years in real estate development.The company has a diversified presence acrossall segments and has a healthy balance betweenresidential and commercial developments. Thecompany has, over the last five years, completed30 msf+ of development and currently has adevelopment pipeline of 36msf, primarilyconcentrated in Bangalore.

Price growth in FY14E

Impact of each 5% point change 5%

Cap rate assumption

Impact of each 1% point change 3%

Source: J.P. Morgan estimates

Price target and valuation analysis

Maintain OW with Mar-14 price target of Rs250. Our PT is based on 8x Dev Co cashEBITDA, in line with the multiple used for the peer group (Sobha). For Rent Co, we useEV/EBITDA multiple of 12x, a 10% discount to the long-term multiples of rental landlord

NAV breakdown chart

Key downside risks include: (a) a slowdown in the IT sector; and (2) sluggishness inexecution, which can adversely impact cash flows and revenue recognition.

Source: J.P. Morgan estimates

EPS: J.P. Morgan vs. consensus (Rs)

Year-end Mar J. P. Morgan Consensus

FY14E 11.5 11.0

FY15E 16.2 14.7

Source: Bloomberg, J.P. Morgan estimates

Residential47%

Office26%

Retail10%

Hospitality8%

Others9%


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Table 1: PEPL 1QFY14 results table

Rs in millions, Year-end Mar 1QFY13 4QFY13 1QFY14 % ch Q/Q % ch Y/Y

Sales 2,192 5,597 4,983 -11% 127%

Cost of construction (1,218) (3,799) (3,311) -13% 172%Employee expenses (147) (337) (234) -31% 59%General/admin & selling expenses (124) (141) (149) 6% 20%Total expenditure (1,488) (4,277) (3,694) -14% 148%

EBITDA 704 1,321 1,289 -2% 83%EBITDA margin 32% 24% 26% 2.3% -6%Depreciation (77) (87.4) (79.8) -9% 4%EBIT 627 1,233 1,209 -2% 93%Other income 272 277.6 310.3 12% 14%Net inancials expenses (240) (258) (257) 0% 7%PBT 659 1,253 1,263 1% 92%

Total tax (166) (363) (396) 9% 139%Tax rate (%) 25 29% 31% 2.4% 6%

PAT 493 890 867 -3% 76%Source: Company data

Table 2: PEPL - Standalone balance sheet

Rs in millions, Year-end Mar 4QFY13 1QFY14

Total ixed assets 5,836 6,040Investments 9,891 9,893

Current assetsInventories 14,905 14,709Sundry debtors 7,653 7,098Cash and bank balance 4,759 4,180Loans and advances 17,270 19,692Interest accrued but not due 719 767Total current assets 45,306 46,446

Liabilities 17,930 16,809Provisions 1,139 1,132Current liabilities and provisions 19,069 17,941

Net current assets 21,478 24,325

Total loans 14,756 15,018

Shareholder unds 27,084 27,950Total liabilities and equity 41,840 42,968Net debt 9,997 10,838

Source: Company data


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Prestige Estate Projects Limited: Summary of FinancialsProfit and Loss Statement Cash flow statementRs in millions, year end Mar FY12 FY13 FY14E FY15E Rs in millions, year end Mar FY12 FY13 FY14E FY15E

Revenues 10,523 19,476 26,211 34,804 EBIT 2,361 5,109 7,020 9,514% change Y/Y (31.8%) 85.1% 34.6% 32.8% Depr. & amortization 605 682 852 1,023

EBIT 2,361 5,109 7,020 9,514 Change in working capital 602 943 329 3,365% change Y/Y (24.6%) 116.4% 37.4% 35.5% Others - - - -EBIT margin (%) 22.4% 26.2% 26.8% 27.3% Cash flow from operations 2,034 4,485 5,196 10,047

Net Interest (851) (854) (1,283) (1,429)Earnings before tax 1,445 4,223 5,737 8,085 Capex (4,992) (6,559) (6,156) (5,918)

% change Y/Y (45.1%) 192.2% 35.9% 40.9% Disposal/(purchase) - - - -Tax (626) (1,314) (1,721) (2,425) Net Interest - - - -

as % of EBT 43.3% 31.1% 30.0% 30.0% Free cash flow (2,477) (1,486) (61) 5,130

Net income (reported) 826 2,860 4,016 5,659% change Y/Y (51.7%) 246.2% 40.4% 40.9% Equity raised/(repaid) (30) 3,079 (643) (739)

Core net profit 826 2,860 4,016 5,659 Debt raised/(repaid) 0 0 0 0% change Y/Y (51.7%) 246.2% 40.4% 40.9% Other (496) (2,884) 2,771 0

Shares outstanding 328 350 350 350 Dividends paid - - - -EPS (reported) 2.5 8.2 11.5 16.2 Beginning cash 3,940 3,261 5,738 1,977

% change Y/Y (51.7%) 224.5% 40.4% 40.9% Ending cash 3,260 5,738 1,977 3,230

Balance sheet Ratio AnalysisRs in millions, year end Mar FY12 FY13 FY14E FY15E Rs in millions, year end Mar FY12 FY13 FY14E FY15E

Cash and cash equivalents 3,261 5,738 1,977 3,230 EBIT margin 22.4% 26.2% 26.8% 27.3%Accounts receivable 8,490 8,010 9,896 13,257 Net margin 7.8% 14.7% 15.3% 16.3%Inventories 15,662 17,408 17,751 14,822 a

Others 10,426 16,127 15,079 16,579 aCurrent assets 37,839 47,283 44,703 47,888 Sales growth (31.8%) 85.1% 34.6% 32.8%

a Net profit growth (51.7%) 246.2% 40.4% 40.9%Investments 866 892 866 866 EPS growth (51.7%) 224.5% 40.4% 40.9%Net fixed assets 19,078 24,930 30,259 35,154 aTotal Assets 59,383 77,595 77,428 85,507 Interest coverage (x) 3.5 6.8 6.1 7.4a Net debt to total capital 38.9% 37.7% 34.5% 28.0%

Liabilities Net debt to equity 63.6% 60.4% 52.7% 38.8%Accounts payables 10,233 16,877 18,079 22,739 Sales/assets 0.2 0.3 0.3 0.4Others 6,222 6,544 6,222 6,222 Assets/equity 2.6 2.8 2.7 2.4Total current liabilities 16,455 23,421 24,301 28,961 ROE 3.9% 11.7% 13.8% 17.0%Total debt 18,637 23,937 19,637 18,137 ROCE 3.5% 7.7% 9.6% 12.8%Other liabilities 113 119 0 0 a

Total Liabilities 35,204 47,478 43,938 47,098 aShareholder's equity 21,510 27,449 30,822 35,741 a

BVPS 65.56 78.43 88.07 102.13 a

Source: Company reports and J.P. Morgan estimates.


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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document

individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Prestige EstateProjects Limited within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Prestige Estate ProjectsLimited.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investmentbanking clients: Prestige Estate Projects Limited.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking PrestigeEstate Projects Limited.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from Prestige Estate Projects Limited.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company , calling 1-800-477-0406, or [email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .

Date Rating Share Price(Rs)

Price Target(Rs)

17-Jan-11 OW 141.25 180.00

18-May-11 OW 143.45 165.00

03-Nov-11 OW 100.25 140.00

04-Sep-12 OW 105.90 165.00

22-Jan-13 NR 173.95 --

02-Apr-13 OW 165.00 250.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if

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Prestige Estate Projects Limited (PREG.BO, PEPL IN) Price Chart

OW Rs250

OW Rs180 OW Rs165 OW Rs140 OW Rs165 NR

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.Break in coverage Jan 22, 2013 - Apr 02, 2013.
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applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policyreasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is

compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appearin the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans researchwebsite, www.jpmorganmarkets.com.

Coverage Universe: Kumar, Saurabh S: Ascendas India Trust (AINT.SI), Ballarpur Industries Ltd. (BILT.BO), Cox and Kings Ltd.(COKI.NS), DLF Limited (DLF.BO), Dish TV (DSTV.BO), HT Media Ltd. (HTML.BO), Havells India Ltd (HVEL.NS), HousingDevelopment and Infrastructure Ltd. (HDIL) (HDIL.BO), Indiabulls Real Estate (INRL.BO), Indian Hotels (IHTL.BO), Jain IrrigationSystems Ltd (JAIR.BO), Jaypee Infratech (JYPE.BO), L&T Finance Holdings Ltd (LTFH.NS), LIC Housing Finance (LICHF.BO),Mahindra & Mahindra Financial Services (MMFS.NS), Oberoi Realty (OEBO.BO), Opto Circuits (India) Ltd (OPTO.BO), PrestigeEstate Projects Limited (PREG.BO), Rallis India Limited (RALL.BO), Shriram Transport Finance (SRTR.BO), Sintex Industries Limited(SNTX.BO), Unitech Ltd (UNTE.BO)

J.P. Morgan Equity Research Ratings Distribution, as of June 28, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%IB clients* 56% 50% 40%

JPMS Equity Research Coverage 42% 50% 8%

IB clients* 76% 66% 55%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

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financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are notintended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own


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