New land bank can lift Brigade Enterprises

Brigade Enterprises Ltd has dodged the menace of the adverse impact of rising home loan rates on property demand, at least, for now.

In the September quarter (Q2FY23) post earnings call, the management said, current home loan rates are still at a relatively lower level than seen in the past. So, despite interest rate hikes and price increases, business momentum has not been affected. In fact, the management is of the view that industry consolidation has aided demand for Grade A developers.

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But investors’ sentiment towards the sector has dampened. In CY22 so far, the Brigade stock has declined by 5%, while the Nifty Realty index has fallen by 9.4%. However, the stock is down nearly 21% from its 52-week high in September.

Brigade aims to clock pre-sales (bookings) worth 3,500-4,000 crore in FY23 aided by a strong launch pipeline. In H1FY23, the company’s sales stood at 1,608 crore. If the demand momentum sustains, it should be able to meet this target. But a significant revival in the stock’s performance depends on other factors, too.

In Q2, Brigade saw pressure in office leasing. “Leasing of its existing vacant area in Brigade Tech Garden (BTG) and WTC, Chennai is a key upside trigger for the stock,» said Parikshit Kandpal, vice president, institutional research, HDFC Securities Ltd.

Despite leasing activities being on a weaker footing, the management expects BTG and WTC to be fully leased out in the next few quarters, with a pipeline of 1 million square feet.

Its office asset, Twin Towers, is likely to be completed by Q4FY24. Further, the company expects SEZ leasing to get a boost with the implementation of the Development of Enterprises and Services Bill, which will be tabled in the winter session of the Parliament.

“While the much-delayed monetization of hospitality assets is not a concern, if it were to materialize, it could offer a fillip to the stock,» said an analyst requesting anonymity.

Recall that Brigade was planning to sell stake in the hospitality business before the covid-19 pandemic. But the sector was hit due to pandemic-led restrictions.

Brigade’s hospitality segment saw a strong recovery in Q2 and the company is open to explore the stake sale opportunity again.

Further, new land bank addition, with an expected revenue potential of 3,000-4,000 crore per year, is key for Brigade’s growth, said Kandpal. According to him, lower-than-expected land bank addition will impact Brigade’s pre-sales and is a downside risk for the stock.

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