This Multibagger Small Cap Real Estate Sector Stock Has Potential To Gain 36%, 'Buy': Edelweiss

Edelweiss Wealth Research, a well-known brokerage firm, has given a buy rating to Brigade Enterprises Ltd. (BEL) for a target price of Rs 633 apiece. According to the brokerage's given target price, it has a strong potential to give strong gains of 36% to the investors in 12 months.

Stock Outlook

The current market price (CMP) of the stock is Rs 521.85 apiece with the 52-week low of Rs 330.05 apiece recorded on 1 September 2021, and the 52-week high of Rs 747.60 apiece recorded on 31 March 2022, respectively. It has a market capitalization of Rs 12,024.67 crore.

Returns over the past 5 years

Over the past week, it has given 4.74%, whereas, in the past 1 month it gave 8.26% and in the past 3 months, it gave 13.52% of positive return, respectively. Over the past 1 year, it gave a positive return of 40.76%. In the past 3 and 5 years, it has given a multibagger return of 161.32% and 189.76%, respectively.

Residential cycle changes direction - strong growth in pre-sales volume and rising prices

BEL made significant headway in pre-sales (backend) over the last five years, led by resurgence in demand post the cyclical upswing, improved affordability, focus on mid-income housing (the main area of demand) and buyers' shift to quality. Pre-sales increased from 1.57mn sq ft in FY18 to 4.7mn sq ft in FY22, and the management is confident of 20% volume growth in FY23E. However, we considered only 10% increase in volume in our conservative estimates. The growth in pre-sales volume is also supported by the expected increase of 5-10% in prices annually.

 

Sustained upswing in commercial demand and increase in leasable area; rebound in consumption to augment retail portfolio

Strategic focus on commercial rental assets is expected to increase BEL's portfolio from 8.7mn sq ft in FY22 to 10.0mn sq ft in FY25E. Moreover, the demand for Grade A office space resurfaced with the declining impact of the pandemic. We expect the average occupancy of BEL's current operational portfolio to improve from 71% in FY22 to 82% on same store basis in FY24E. Recovery in demand and declining vacancy rate (Bangalore has one of the lowest levels of vacancy in India at approximately 10%) will keep the demand for BEL's new rental properties going in the next few years. In the retail sector, the consumption level in malls have reached the pre-COVID-19 levels. BEL's malls are running at 90% occupancy, and we expect rental growth to continue with improvement in consumption. BEL's retail portfolio has strong location advantages, and the strong occupancy rate validates the company's expertise in operating malls.

Focused strategy on mid-income housing - sweet spot of residential demand and strong brand to drive sales momentum

BEL has built a tenacious brand in the last few decades of its existence, helping it mitigate the impact of the weak environment in the residential segment. Furthermore, the company was able to attract clients for rental properties.

Key growth enabler

Favorable demand-supply balance in hotel sector, resurgence in demand post COVID-19. "Our recent interaction with experts revealed the closure of certain hotels due to COVID-19 tilted the demand-supply balance in favor of existing hotels. The occupancy and ARR of hotels have bounced back sharply, assisted by increase in corporate travel and MICE events. The overall occupancy increased to 64% as of 4QFY22 from 43% in 4QFY21, with ARR of INR4,000, and is expected to continue this upswing. The company has 1,649 operational rooms across 9 hotels," the brokerage has said.

 

Balance sheet remains secure

Possible decline in net-debt-to-equity ratio despite capex. "We expect BEL's net-debt-to-equity ratio to fall from 1.34x in FY22 to 0.17x in FY24E. Strong portfolio of operating rental assets, rising cash flow from residential sales and resurgence in demand for hotels are expected to improve cash flow and thus reduce net debt to equity," the brokerage has said,

 

Bullish On Rental Asset Portfolio, buy for a target price of Rs 633

The brokerage said, "We maintain our buy rating at 1x FY24E NAV based target price of INR633. Our optimism is driven by BEL's attractive valuation, which is supported by growth in residential sales; strong portfolio of operational rental assets, which reduces the risk associated with the residential segment; and resurgence in demand for hotel assets."

Key risks

1. Rapid rise in interest rates

2. Slower-than-expected increase in operational rental assets

About - Brigade Enterprises Ltd.

Brigade is a leading property developer in South India. Our Projects extend across several major cities in South India including Apartments and Villas in Bangalore, Chennai, Chikmagalur, Hyderabad, Kochi, Mangalore and Mysore. Explore Apartments in Bangalore, Apartments in Chennai and Hyderabad.

Brigade Group is headquartered in Bangalore, with branch offices in several cities in South India and a representative office in Dubai. Brigade Group has also established a strong stamp into the commercial space by building some of the biggest malls in Bangalore City. Brigade Group has a uniquely diverse multi-domain portfolio that covers property development, property management services, hospitality and education.

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.