Prestige Estates Projects Ltd
NSE:PRESTIGE
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Prestige Estates Projects Ltd
Earnings Call Analysis
Q1-2025 Analysis
Prestige Estates Projects Ltd
Prestige Estates recorded a robust sales performance this quarter with sales reaching INR 3,030 crores, despite the macroeconomic events like elections affecting the market. The company achieved healthy collections of INR 2,916 crores, essential for sustaining its operations. A total area of 2.86 million square feet was sold across 1,364 units, with average realizations increasing to INR 11,934 per square foot for apartments, villas, and commercial spaces, and INR 7,285 per square foot for plots.
The company launched two projects this quarter covering 1.86 million square feet, despite delays due to the Code of Conduct. The significant projects were Prestige Camden Gardens in North Bangalore and Prestige King’s County in South Bangalore. Sales were well-distributed among key markets: Bangalore contributed 43% of total sales, Hyderabad 32%, and Mumbai 23%. Upcoming projects include Prestige Raintree Park, Prestige Falcon City, and Prestige Southern Star in Bangalore, among others in Mumbai, NCR, Chennai, and Goa.
The net cash flow from operations for the quarter stood at INR 1,175 crores. Significant investments were made with INR 1,000 crores spent on residential construction costs, INR 800 crores on CapEx, and INR 1,500 crores on new business developments, including the acquisition of land in Bangalore and consolidation of a commercial property in Pune. The residential segment holds INR 4,500 crores of the total INR 8,200 crores net debt, but the company plans to achieve a cash surplus in the residential segment within the next six quarters.
This quarter's reported EBITDA margins were exceptionally strong, bolstered by a mark-to-market gain of INR 87 crores from the Nexus REIT business. Excluding this, the margins stood at an impressive 43%, primarily driven by a favorable project mix with higher revenue proportions from projects with better margins.
Prestige Estates is optimistic about meeting and possibly exceeding its growth guidance of 20%-25% for the year, fueled by upcoming launches and strong market demand. The company is strategically planning launches in key markets like Bangalore, Mumbai, and NCR within the next few quarters to bolster its sales numbers.
The office market has shown resilience with 90%-plus occupancy rates expected to continue improving. The company has already secured leases for upcoming properties like the Aerocity development in Delhi. Retail spaces are also performing well, with current malls achieving 95%-97% occupancy and high trading volumes contributing significantly to revenue.
The hospitality segment has expanded with an additional 1,200-1,300 operational keys. Projects include ongoing construction for 955 keys and planned developments adding up to 2,942 keys across various regions, including significant additions in Mumbai and Bangalore. This expansion is expected to substantially increase the segment's revenue potential.
Prestige Estates is also focusing on strategic investments for future growth, planning to raise and deploy capital for retiring debt and funding new growth opportunities. Specific plans include further expanding retail spaces and adding new hotel projects, aligned with the projected demand and approval timelines.
The overall market sentiment remains positive, with sustained demand and robust sales performance across various segments. The company's strategic launches and expansions align with market opportunities, ensuring continued revenue growth and operational efficiency.
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Ladies and gentlemen, good day, and welcome to the Prestige Estates Q1 FY '25 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ashutosh Mittal from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, Neha. Good afternoon, everyone, and welcome to the call. We have the management from Prestige Estates, represented by Mr. Irfan Razack, Chairman and Managing Director; Mr. Zayd Noaman, Executive Director; and Mr. Amit Mor, CFO.
I now hand over the call to the management for the initial comments. Thank you.
Hi, good afternoon, everyone. I'd like Zayd Noaman to give his opening remarks. As usual, we've got a good quarter in sales on the [indiscernible]. There has been too much inventory for us to sell, that's why it looks the top line is low. But eventually, we'll get there. I want Zayd to say his bit, and then I will add up if there's anything to say.
Thank you, sir. A very good afternoon to each and everybody on the call. We are looking forward to eagerly having this call with you all.
As Mr. Razack commented, the quarter was decent given the events that -- the macroeconomic events that took place in the country, namely, the elections, which we had the Code of Conduct. So we had a quarterly sales of INR 3,030 crores. Sales were complemented by healthy collections, which are very important for us, for our operations, and we had INR 2,916 crores of collections. We sold 2.86 million square feet of area across 1,364 units with an average realization, which increased to INR 11,934 per square foot for apartment, villas and commercial spaces and INR 7,285 per square foot for plots.
We launched 2 projects this quarter, spanning 1.86 million square feet despite the lag in approvals, as I mentioned earlier, due to the Code of Conduct. The first was Prestige Camden Gardens, which is an apartment complex in North Bangalore and Prestige King's County is a plotted development in South Bangalore. We had a strong mix of sales from our key geographies, namely, Bangalore, Hyderabad and Mumbai. Bangalore at 43%, Hyderabad at 32% of sales and Mumbai contributed to 23% of the sales mix.
We have key launches lined up for the coming quarters, notably Prestige Raintree Park, Prestige Falcon City and Prestige Southern Star in Bangalore, Prestige Forest Hills and [ Nautilus ] in Mumbai, Prestige City Indirapuram and Prestige Bougainvillea in NCR, Prestige Pallava Gardens in Chennai and Prestige Sea Scapes and Prestige Biosphere in Goa.
With this, I complete my opening remarks and we'd like to -- Mr. Razack would like to add on.
Yes. I mean, whatever Zayd has said, it's something that there is a lot of inventory to come. As of today, the company has very minimum inventory. And the teams are working very, very hard to see that the approvals come and the RERA clearance is coming. The positive thing is the market is still pretty strong. The demand is there. And as long as I can feed the demand, I think we will get some great numbers in the next few quarters.
With this, we'll open for your questions.
[Operator Instructions] The first question is from Parikshit Kandpal from HDFC Securities.
Congratulations on the launches, but despite, you've been able to do sales of INR 3,000 crores. So my next question is that for the rest of the year, we have a big task of growing 20%, 25% on the base of last year sales. So how do you think the launches will pan out for the 3 quarters? And largely in the second half, do you think that presales will see a significant pickup now?
Yes, it should and must. As it is, see, we've already finished off in July. And even in July, we've not had any launch. But hopefully, August and September, we should see at least 3 to 4 launches in Bangalore as well as in Mumbai. And that should prop up the numbers. There is a plan, NIM plan. I only hope the -- it's all about the regulatory stuff. As long as the regulatory falls in place, I think we should have a very strong quarter, the second quarter. And the third quarter will be quite big in that sense, because we also have NCR kicking in. We'll have some high-end projects in Mumbai as well as in Goa.
So there is a lot of inventory that will come. There's a lot of -- it's not that there's any dearth of raw material. Raw material is there. It's all how it can be churned up, brought to the market. And the good news is the market is still very strong. Still there is demand. And still there is appetite and there is -- whatever we've launched gets consumed. Like we had talked about Camden Gardens, we launched that in the last quarter. It was like by the time we opened it, it was shut. It was sold and we are like got out of inventory.
We launched just a part of King's County because we need it. We said let's sale this out properly. The first phase, whatever we launched, got sold out on day 1 and that's how we got the numbers for the June quarter. And let's strategize, let's see how things pan out. We are working on it. The teams are working on it. And I think we should have a robust '24.
Okay. The second question on the fund ratio you have taken, enabling evolution for raising funds. So just wanted to get some sense on how are you looking to deploy these funds? And what will be the time period of deployment? Have you already identified some opportunities, growth opportunities, where you can start deploying it within this year? So what kind of growth pipeline do you think you can build with those funds?
See, that's a good question. It's all work in progress. First thing is we definitely have to identify what we're going to do when we're going to raise capital. First, the intend to raise capital is there. The teams are working on how to raise the capital and it's all work in progress, like we said. And it will be a mixed bag. It will be probably -- definitely some retirement of debt. And then also it will also be used for growth capital.
So it will be a mixture of a whole lot of things. We can't keep funds either. But whenever they do come, whenever that does happen, there is a game plan for it. You will come to know as we go along.
Okay. And just the last piece on the office and the retail market. So how are you seeing the lease momentum there, given that you have a large pipeline you're building out. So if you can also give some sense on how is the exit rental looking for FY '25 and '26? So are you on track to achieve your rental guidance that you have been giving quarterly, so that you are on trend?
We will -- I think now in the last few quarters, we've been given segment-wise reporting also. If you look at the overall return on investment and other things, which we look at that. I think all segments as of today are performing very well.
And retail, you asked me specifically retail. Whatever malls we have as of today are all 95% or 97% occupied. 2%, 3% is basically only to churn some -- get certain better brands. And the appetite is there in the retail space, where there's good trading that happens. Our store in South Bangalore is trading at more than INR 100-plus crores per month, which is a good sign. And because most of the deals are linked to revenue share and the more the trading that happens, the more the revenue that comes to us.
Having said that, if you ask me, our game plan to build mall is already in place. We started construction of 2 and moving on there need to start construction as and when the approvals fall in place. So these -- all these as per that 2028 number that we gave, the exit rental, we should and we will meet those numbers. There shouldn't be any problem on that.
And any outlook on office market, sir? How is the office market looking like?
See, when COVID happened, the office market also we were a little skeptical. But the good part is office is also doing extremely well. The vacancy levels have gone down comfortably. And now it's 90%-plus occupancy is there, except for 1 or 2 new properties, which have just got ready. Those are work in progress. But I think in the next 2 quarters, even those should get filled up.
So the vacancies are minimal. And whatever is coming up also, there are people who are interested in pre-leasing including, see, even Delhi, our Aerocity property by the time next year, we complete it. But we've already signed the lease, so that's a good point.
[Operator Instructions] The next question is from the line of Pritesh Sheth from Motilal Oswal Financial Services.
So firstly, on your hospitality portfolio, which now is enhanced by another 1,200, 1,300-odd keys versus what you had disclosed last quarter, right? If you can give us some geographical mix in terms of where are these new keys coming up? And second, how that increases the revenue and profit potential from that segment? Because earlier we were expecting around INR 2,600-odd crores of revenue from 3,000 odd keys that we had planned for. Right now, how it increases from here on.
See, you rightly said, we have got operating as of today 1,465 keys and that doesn't change. But under construction, what we have is 955 keys. And then that would be Aerocity property as well as we are doing a W Hotel (sic) [ JW Hotel ] in Bangalore North and the Aerocity is Delhi.
And upcoming is what you asked for, where are these keys coming from? There are 2,942 keys that have been planned. We have various hotels in different geographies, including Mumbai and Mumbai just [indiscernible] BKC is 1 hotel coming up. And there are many others that are in the pipeline. But these are upcoming is also where properties and land, which is tied up. It's not something, which is not yet tied up. And then there are many things, opportunities that do come by.
But with this itself, our overall top line revenue on this should be -- just let me give you that exact figure on this, INR 4,562, at the end of the day what will be our revenue is already on. Revenue is INR 2,289 crores, INR 2,300 crores you can say. That's our say. That is Prestige share. It's INR 3,200, but we also have some partners. If we take only our share, it's INR 2,300 crores per annum, the top line.
Okay. Perfect. That's helpful. Second, on the leverage, so out of INR 8,200 crores of net debt, roughly INR 4,500 crores is in the residential segment. And now with almost a couple of years since we have scaled up massively in the residential business, how do you see this trajectory going ahead? Would we be getting next 1.5 years, we would be at a net cash position in the residential segment, while having some bit of debt in the commercial segment? How do you look at this trend going down?
That's an excellent question. See, the thing is, I always say in my residential business I have no business to have debt. Now if I do have debt, which is almost now INR 5,000 crores on the residential side, it's only because in the last few quarters we've picked up a lot of land. We've paid for land unlike doing joint development. And where we paid for land is in Delhi, it's in Goa, it's in Hyderabad, it's in Mumbai. Now all these projects will come to fruition, where we launched and also in Bangalore.
So now these launches will come in, and I -- like you rightly said, in the next 6 quarters, I think we should come into a cash surplus situation. And there should be no debt in the residential segment. Yes, we do have debt in the hospitality sector, a little less than INR 1,000 crores, about INR 1,000 crores in retail and also INR 1,000 crores in the office segment. These are all lease rental discounting. And this since the asset is being held by us. And if you look at the debt-to-equity ratio there, it is very minimal. I believe it's very, very comfortable and even the EMIs can be serviced very easily.
But our endeavor at the management level, company level is always to see that the residential level, the debt will come down to surplus in the residential side, and we are working towards it. And I don't see any reason why it should not happen because even the markets are good, we are able to get positive cash flows. And unless, we go buy more land, that's a separate story. But then that's today's churn. But it's the first time churn, this money will be, again, used to churn that next year. That's how it will happen.
Sure. That's helpful. Just on cash flow, since you have not put that slide, but just if you can update us on what was the operating cash flow for the quarter? And how much did you spend on land investments and CapEx to reconcile the debt movement, if you can help on that?
Amit will answer this. Amit?
Yes. During the quarter, on the net cash flow from operations resulted at INR 1,175 crores. On the residential, INR 1,000 crores was spent on residential construction costs. On the investment -- investing activities, we have spent INR 800 crores on the CapEx construction cost and close to INR 1,500 crores on new business development, which includes land and [indiscernible] land and [ street festive ] buyback of [ area ].
[indiscernible] was INR 1,500 crores.
From financing was INR 980 crores.
Sorry, I didn't get the land investment, INR 1,500 crores you mentioned or INR 2,500 crores?
INR 1,500 crores in the quarter. During the quarter, it was INR 1,500 crores. Basically, we have done some business development. We have purchased some land in Bangalore, then we had one commercial property in Pune where we consolidated our stake. It was earlier 65%. We made it 100%. We have put some consideration for that. And then one more land parcel we have purchased in Bangalore for a [indiscernible] project. There will be a [indiscernible] crores.
Sure. Sure. And sorry, if I just can push one last. What's the updated CapEx now to be spent because we have increased the retail pipeline as well -- retail project portfolio as well to 12 million square feet now. So can you just provide as of June, how much we have to spend on the CapEx including all office and commercial?
It will be INR 15,000 crores to INR 16,000 crores, all the 3 segments together, commercial estate land, hospitality and retail.
[Operator Instructions] The next question is from the line of Yash Gupta from Thinksight Advisory.
So first question is on the EBITDA margin. How EBITDA margin for the presales are looking like? We have seen in the last 2, 3 years, prices have gone slightly by more than 20%, 30%, but cost more over like maybe at same level. So how the current EBITDA margin for the presales look like?
Our gross margins are in the range of 35% and EBITDA margins in the range of 25% to 27%.
So after the increase in the prices, then also our EBITDA margin at 25%, 26%?
Yes. If you see historically, we have been reporting EBITDA margins in the range of 22% to 23%. It has improved slightly to around 25% to 27%.
Okay, sir. Sir, second question is on the competition. As of now, we are seeing that some -- competition is gaining some momentum in last 2, 3 quarters. So during the signing of the project, are we facing some competition issues?
Which competition is it?
Sir, in the residential business during the signing of projects and all.
No, no, we don't go, I mean, give deals, which are not just done on spreadsheet. We are conservative and we tie up property and it still can't if things don't come as per what we believe should be the right number. We don't do the transaction. There are many transactions that come to our tables, hundreds and hundreds of them. We are very picky. We are very choosy. We choose the best location, best landowner and also to make sure the deal is workable in good times as well as in bad times. Otherwise, if you try to ride the wave and do it on the upper curve and make certain transactions, certainly, the market churn will be caught up with negativity.
The next question is from the line of Puneet from HSBC.
My first question is when should we expect the launch to happen in the NCR market here?
Yes, not this quarter, for sure. We do the launch in -- I think maybe all the projects, 2 projects at NCR, both should get launched and that where there's a small project in KG Marg, even that also should get launched in the October quarter.
Okay. And when you launch in that market, will you endeavor to sell everything at bunch or will you calibrate the things?
We have to create the year depends on how things are. If there is momentum, are always a site in our company is when there's momentum, if things are good, we reap the harvest. Don't get greedy and try to do something for later and then get stuck.
Okay, understood. And sir, one of the very few developers who operate in multiple markets. So between Mumbai, Chennai, Bangalore, Hyderabad, which markets are looking best to you? If it is possible to put it in some sort of pecking order in terms of attractiveness both in terms of opportunity size and also pricing side?
Each market has its own nuances. Since we are Bangalore-based, I would still -- my preference would be still Bangalore. But every market has opportunity. Every market is unique in its own way. Mumbai is unique in its own way. Hyderabad is unique in its own way. Chennai is unique in its own way. Of course, we are yet to taste the fruits of NCR. We've tied our plan. We are on the planning, we're waiting approval. When that happens, we'll see.
Of course, now there is also we have been present in Kerala for a long time. That's a small market. We are there. Our presence is there. We are doing that, and we do recognize that we get small revenues from there. Not so much, but not number movers like we get from the other metro cities. And I believe that once we do well in NCR, there's a lot more that we can do there.
Okay. Okay. Understood. And my -- just 2 accounting questions. If you look at the EBITDA margins this time the reported one seems to be quite strong. What's driving that?
Sir, can you just repeat the opinion?
The reported EBITDA margin this quarter seems to be quite strong. What's driving that?
One major reason is we have booked one mark-to-market gain of close to INR 87 crores during the quarter on our Nexus REIT business. So that has contributed to EBITDA margin straight to the 100%. So that has improved our EBITDA margin significantly.
But that would set in other income, right? Even excluding the other income, the margins are quite nice at almost 43%.
It's basically -- apart from that, the increase in EBITDA margin is basically on account of the project mix, because in the current quarter, we had a higher proportion of revenues from certain purchase where the margins are better when we compare with the last quarter. But otherwise, the EBITDA margins have been stable.
Right. And also the interest and finance charges have fallen on a Q-on-Q basis.
So it's a combination of price increase. It's a combination of the geographies that are coming in, some luxury properties in Mumbai that have added up to the overall thing. But I think Bombay hasn't given us any financial revenue at the moment because of [indiscernible] and condition. So it's basically on the Bangalore and Hyderabad and other cities.
Okay. Understood. And just on the interest and finance charges that also is down Q-on-Q despite rising debt. Anything, how should one read that?
So that is basically because in the last quarter because it was a year, in many of the experience whether it's a JV partner, this is the cash flows. We had booked interest cost on whatever contributions made by the JV partner as well as the company. That is a mechanism, how good mechanism is before that [indiscernible].
Okay. And this quarter, there would be a JV partner share as well? Or is it completely deal number?
That accounting came for the first time in the last quarter, which because of which the amount was higher. It was good for the quarter and for the entire year. Now on a year on year -- going forward we will be booked on a quarterly basis.
The next question is from the line of Abhinav Sinha from Jefferies India.
Sir, I just wanted to check, do we still stick to a 25%, 30% growth guidance for the year?
Yes, Abhinav, [Foreign Language] we will still maybe even exceed that 20%, 25%. So work in progress, but it's inventory that comes in to sell. And I'm very confident once we get the inventory, the sales will be there.
And sir, which are the 3, 4 launches that we should look forward to in the second quarter?
Yes. This quarter, I think Zayd told us first is Raintree Park. Then you've got Pine Forest and we got White Meadows, these are all 3 in Bangalore. Then we've got Mumbai, which is Forest Hills. These are the 4, which we can look forward. And there's a plotted development, which is Sunset Park. We are trying hard to bring that also in this quarter. With these, I think there will be quite a lot of inventory.
Okay. And sir, lastly, on the CapEx bit. So the increases that we have done in the pipeline on both hotel and retail, I guess, I mean, that was the question earlier as well. But I just wanted to clarify what are the costs for that as such? And do we -- did we like buy additional land or they're essentially reallocation within our existing projects?
No, no, the land is there. I think in our investor presentation, the entire details have been given on the amount of money that needs to be spent for hotel, the amount of money that needs to be spent for [indiscernible]. I think we can share that with you.
Because of regulatory requirements, those details we have not shared this quarter, okay? But as I mentioned earlier, if you see in the last quarter, it was around INR 15,000 crores. With this [indiscernible] the CapEx will [indiscernible] Prestige share.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for your active participation. I hope we've answered all your questions comprehensively and look forward to interact with you in the future. Thank you so much.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.