IS READY TER FY’23

least Rs 12,000 crore this fiscal, up 16% annually, with 8,500 crore coming from its core market of Bengaluru and the rest from other cities such as Mumbai and Hyderabad. Already, around Rs 750 crore of sales bookings in Q1 had come in from its new market of Mumbai. To achieve such high growth Prestige has plans to launch multiple projects, having close to about 15 million square feet of area, in the upcoming quarters of this fiscal year, apart from selling its inventories in the ongoing projects. Close on heels of its success in Mumbai, Prestige is also planning to launch a project in the Noida market this fiscal.

When it comes to capital markets, there is nothing like being a leader. From TCS to Asian Paints and from Reliance to HDFC Bank, it is a winner-takes-it-all market. Eyes of the foreign and domestic institutional investors, who basically drive the Indian equity market, are forever focused on the longstanding sector leaders, and on emerging leaders if any. That is why Prestige Estates Projects is in international limelight right now, after their FY’22 numbers were published. For, in this past fiscal, Prestige has stunned most industry watchers to emerge as the largest developer in India in terms of sales booking, ahead of traditional sector leaders including DLF, Macrotech (Lodha) & Godrej Properties. If you are stock savvy, you will now be eager to know the market cap of Prestige vis-a-vis these peers, and the answer is it is way too low - only 46% of Godrej, 34% of Macrotech and 22% of DLF. Yes, by now, you will be able to guess where Prestige is headed, and that is only one reason why Prestige Estates is in international limelight right now!

When the Q4 and annual numbers of India’s top four listed developers came in, there were many interesting trends to detect. For one, all were in serious sales upswings. But Prestige squarely beat all the other threeDLF, Lodha & Godrej - in absolute sales bookings during the past fiscal, and also on percentage terms, except for DLF.

Against Lodha’s sales bookings of Rs. 9024 crore, DLF’s Rs. 7273 crore, and Godrej’s Rs. 7861 crore, Prestige recorded a sales booking of Rs. 10,382 crore, beating them all by a wide margin. Needless to say, it is Prestige’s largest sales booking ever too. In percentage terms, while Lodha witnessed a

51% growth in sales bookings and Godrej saw a 17% growth, Prestige grew by 90%, second only to DLF’s 135% growth which was however from a low base last year. There was more to this performance by Prestige than which meets the eye. Firstly, all the other three developers were headquartered in either Mumbai or in DelhiNCR, and their primary development activities concentrated in these two regions, which are the most expensive two realty markets in India. In contrast, Prestige is headquartered in Bengaluru, with its primary developments there, and has only recently entered Mumbai and NCR-Delhi, which means its highest-value sales are yet to kick in, on a massive scale!

And when it comes to market capitalization, Prestige is much smaller than these three peers that it decisively overtook in sales bookings! And when you go into the internals of this market-cap riddle, you realize that it is indeed a matter of lower valuation, with Prestige’s Trailing Twelve Months (TTM) Price/Earnings (P/E) multiple being at just 15 times, as against 53 times accorded to DLF, 46 times to Lodha and 105 times given to Godrej! Now, with Prestige emerging as the sales leader, expect a big shakeout in the realty sector valuations!

No wonder then that international heavyweights like Morgan Stanley and JP Morgan are both having ‘Overweight’ stance on the Prestige stock with targets of Rs. 612 and Rs. 635 respectively as against the scrip’s price of around Rs. 425 now. One reason why Prestige has been able to do quite well in FY’22 is its unwavering focus so far on the Bengaluru market. The Silicon Valley of India performed quite well in Q4 of FY’22, both in terms of housing sales and new launches. As per ANAROCK Research, Bengaluru saw housing sales of nearly 13,450 units in this quarter, which is an yearly growth of over 55%, while new launches stood at 13,210 units, an increase of 72%.

As the de facto leader of Bengaluru, Prestige reaped rich dividends from this post pandemic trend. There was robust demand for its sprawling Prestige City project in Bengaluru as well as for its new launches in Hyderabad and elsewhere in the country. But the future game changer for Prestige is expected to be its recent foray into India’s economic capital of Mumbai, and arguably the country’s most expensive realty market.

Prestige had launched its first residential projects in Mumbai Metropolitan Region (MMR), including Prestige City at Mulund, Prestige Daffodils at Pali Hill, and Prestige Jasdan Classic at Central Mumbai. The response to these three projects at the launch event itself has been extremely good, attesting to the well-thought of nature of these offerings. Prestige has a stated aim of achieving Rs. 3,000 crore in annual sales from these and upcoming MMR projects. Total launches by Prestige in FY22 stood at 16.77 million square feet. For this ongoing financial year, the company has set a sales guidance of more than Rs. 10,000 crore, which it expects to achieve through a strong pipeline of projects in Bengaluru and other markets like Mumbai. Going forward, more than 50% of the new launches are slated outside of its core Bengaluru market. Prestige has long been pursuing a goal of debt reduction, and it has a stated objective of maintaining net debt/equity ratio at around 0.5x in the medium term. In Q4 of FY’22, the success of this plan was visible with its net debt to equity ratio standing at

0.35x. Net debt fell sequentially or QoQ from Rs. 4,170 crore in Q3 of FY’22 to Rs. 3,360 crore in Q4 of FY’22. The company has achieved this through some extraordinary and well-structured deals during the last two years.

In 2021, Prestige had announced the sale of some of its commercial and residential assets in two phases to the US based Blackstone Group, for reducing its debt. The deal had a total enterprise value of around Rs. 9,160 crore. The second phase of the Blackstone deal has also concluded in FY’22, with the remaining payment of Rs. 250 crore to Prestige expected soon.

During the last three years, Prestige has been witnessing a dramatic period of turnaround. Under Chairman & Managing Director Irfan Razack’s visionary leadership, FY’21 saw Prestige’s profits and RoE nearly tripling, and debt-to-equity diving to one-third of the previous year thanks to the $1.5 billion Blackstone deal.

Unlike many of its southern peers, Prestige has a significant portfolio under lease. Prestige has 29 million sq ft of office space and 5 million sq ft of retail space in various stages of implementation now. The residential sales and commercial leasing activity act as twin engines of growth for Prestige, and are complementary in nature. While sales momentum in the residential segment generates free cash, timely execution in the leasing segment contributes to the further value generation.

Prestige also enjoys significant pricing power in the market, and this has come in handy during this inflationary period that has driven up input and construction costs. To offset this, Prestige has raised prices recently.

But what really matters for Prestige now is the impressive diversifications it is undertaking in warehousing, hospitality, retail and its impressive geographic diversification into Mumbai.

One huge advantage a brand like Prestige Estates holds in India’s realty market is that, having made a name for itself in high quality residential and commercial projects, it can extend that expertise and goodwill to new buzzing segments as they emerge. The firm had some time back made such a silent foray into large Grade A warehouses. For testing the waters, it built two such warehouses in a 15 acre land it held in Malur near Bengaluru.

As in every Prestige project, keen attention went into every detail, especially as it was a learning experience for the company too, as it was doing Grade A warehouses for the first time. But it came out with flying colours with one of the buildings attracting e-com major Flipkart as the tenant and the other being taken by Dhoot Transmission.

Now, having proved itself in this domain with such a pilot project, Prestige Estates is going all out to develop this domain, especially as there is a huge demand from e-commerce companies like Flipkart, Amazon, and several of their smaller peers. Towards this, the company has acquired multiple land parcels in and around Bengaluru as a first step.

Being a Bengaluru headquartered developer, the company has unparalleled expertise in the city, and the city being the e-commerce hub of India also augurs well for it. Later on, Prestige plans to take this vertical to other regions of the country too. But unlike some of its peers, it is not making a big splash for attracting investors at this stage, despite the warehousing sector attracting $900 million investments in 2021 alone.

Like in everything it does, Prestige wants to differentiate itself in this sector with premium offerings, and it also wants to undertake significant growth and value addition in this vertical, before considering to on-board investors into this. This has been a strategy it did quite successfully in its retail & office space vertical, as seen in the Blackstone deal.

In Grade A warehousing, it is eyeing a unique opportunity, as large organized players like itself with expertise in everything from conceptualization to land acquisition to design to execution to leasing, is rare in this field. That is why Prestige is confident of differentiating its upcoming warehouses from the rest of the pack. By investing significant funds into this vertical on its own, Prestige wants to build one of the largest Grade A warehousing portfolios in the country.

With its foray into warehousing, Prestige is also closing a gap in its portfolio in retail. Already, it was a noted player in brick n’ mortar retailing, having developed several malls and running them too. Even though it sold off significant retail properties to Blackstone, it remains bullish on physical retailing as it believes that going forward retailing will follow a hybrid model of ecom and brick n’ mortar.

This can be seen from the changing strategies of e-com companies like Flipkart, Amazon, Jiomart etc, all of whom are planning to leverage the tens of thousands of multi-brand and single-brand physical stores owned by individual retailers in malls and high streets for wider reach and rapid delivery to their growing customer base. This means significantly more business for such shops and malls, and Prestige is gearing up for this future with two new malls under construction and six more malls in the planning stage. When these are complete, Prestige will have double the retail properties compared to the retail assets it sold to Blackstone last year.

With large IT and ITES players starting to bring back their huge workforces back to their offices, Prestige is also eyeing an uptick in the demand for office space. Sensing the green shoots of recovery in office space demand, it is building several such office space projects in multiple cities including India’s economic capital of Mumbai.

Another segment that is witnessing a renewed surge post the pandemic is revenge travel, among both business and leisure travellers, and hospitality properties stand to gain the best benefits out of this. Prestige, which already has a strong foothold in hospitality, is all set to cement it further by a major tie-up with US hospitality major Marriott International for two new hospitality projects in New Delhi. Prestige and its 50:50 joint venture partner DB Realty will develop two Marriott hotels and a convention centre in a 7.7 acre land in Aerocity.

The two projects - New Delhi Marriott Marquis & Convention Centre and The St. Regis Aerocity – are unique in the Indian market. While the former will be the first Marriott Marquis & Convention Centre in India, the latter will be a tribute to Marriot’s flagship hotel in US, The St. Regis New York, and will feature its renowned New York Deli. Together these two properties will bring 779 rooms to the New Delhi hospitality market, and 85,000 sq ft of premium meeting spaces. For the convenience of business and leisure travellers visiting and staying in New Delhi, the two properties are coming up quite near to Indira Gandhi International Airport. And it is not only expansion into such buzzing verticals that Prestige is handling currently. It is in the midst of doing what is historically its greatest expansion ever – a geographic expansion – into Mumbai, arguably the hottest property market in the country for long.

Traditionally, most non Mumbai based developers have however not fared well in the city which is home to stock market titans and Bollywood celebrities, due to multiple reasons. One factor has been the exorbitant cost of land, which has resulted in either super expensive apartments that few developers can market effectively, or the super small apartments for the masses which witness intense competition between almost all kinds of developers. Into such a scenario has Prestige entered boldly with some unique projects.

Prestige’s very first project in Mumbai, Jasdan Classic in Central Mumbai speaks volumes about their strategy for the city. Even when some of the largest Mumbai based developers prefer far away suburbs for premium projects, Prestige has chosen an inside city land at Byculla West for this flagship project. Jasdan Classic consists of two skyscrapers with 233 ultra luxury homes. They are relatively large sized apartments with configurations of 2,3,4-BHK and priced between Rs. 3.69 crore and Rs. 9.44 crore.

Jasdan Classic is spread over 2.2 acres of land, with each tower of 45 storeys. Nine levels of podium parking, three levels of clubhouse and plush amenities like an infinity swimming pool, gym, spa, squash court, & multi-purpose hall are available inside the sprawling project.

All the apartments here are designed in spacious layouts with ultra-modern living areas, large windows for cross ventilation and balconies featuring breath-taking views of the South Mumbai cityscape. The Arabian Sea on the West and the Eastern Harbor on the East sets the perfect tone of style and class for the prospective homebuyers here.

The message from Prestige is loud and clear – they are not compromising on location, or space offered or on ultra-premium amenities. While marketing such a project is a tough call for many developers, Prestige is confident of handling it comfortably, and besides that, since there are only 233 homes to sell, this flagship project from Prestige is likely to be a sure and steady sell-out.

The selection of a hot and expensive location like Byculla West in Central Mumbai for their flagship project, is not a one off strategy either. Upcoming residential projects from Prestige in Mumbai would be at similar hot locations like Pali Hill at Bandra and Marine Lines. Prestige has boldly entered such super premium micromarkets, with a keen insight that for a change many high net worth families would prefer luxury homes in such prime locations rather than in the outskirts or suburbs of the city.

That is, if such projects were available. For long now, such homes from tier 1 branded developers were rare. In its upcoming commercial developments in Mumbai too, Prestige wants to develop in the best addresses, like it has always done in Bengaluru. This has led to it choosing land parcels in prime locations like Mahalaxmi and Bandra Kurla Complex for its first two commercial projects in the city.

However, this doesn’t mean that Prestige would be shying away from the other end of the housing spectrum in Mumbai, the relatively affordable segment. The listed developer has carefully chosen the buzzing suburb of Mulund for its foray into this segment. Interestingly, this is its largest land parcel so far in Mumbai, and given the intense competition there among most of the large players, expect Prestige to offer a significantly differentiated range of homes.