Brigade Enterprises: Stepping Up Growth with Strategic Land Acquisitions

Brigade Enterprises has been on a robust growth trajectory in the year-to-date fiscal year 2024 (YTDFY24), marked by significant land acquisitions in Hyderabad, Chennai, and Bengaluru, with a cumulative estimated Gross Development Value (GDV) of INR 53 billion. The company’s strategic moves have positioned it for substantial residential and rental growth. Here are the key insights from the latest analysis:

Key Highlights of Brigade Enterprises:

1. Residential Expansion: Brigade Enterprises is set to launch approximately 8 million square feet (msf) of residential projects in the coming 12 months, contributing to residential sales bookings of INR 45.8 billion in FY24E and INR 51.3 billion in FY25E. These launches follow a strong Q1FY24 performance, with sales bookings of 1.5 msf worth INR 10.0 billion, representing a 22% YoY increase in value terms.
2. Strategic Land Acquisitions: Brigade’s land acquisition strategy includes a 10-acre parcel in Kokapet, Hyderabad, with an estimated GDV of INR 35 billion, a 6.5-acre land parcel in Sholinganallur, Chennai, with an estimated GDV of INR 10 billion, and a 5-acre land parcel in North Bengaluru, with an estimated GDV of INR 8 billion.
3. Rental Growth: While the company has achieved 100% occupancy in non-SEZ (Special Economic Zone) spaces, projects like Tech Gardens and World Trade Centre, Chennai, are experiencing higher vacancies due to delays in SEZ de-notification policies. Brigade Enterprises aims for 100% portfolio-level occupancy by March 2024, which currently stands at 84%. It is projected to achieve a rental Net Operating Income (NOI) Compound Annual Growth Rate (CAGR) of 16% from FY22 to FY25, reaching INR 6.2 billion. This growth will be driven by the lease-up of vacant space in Tech Gardens, Bengaluru, and the full operation of the Brigade Twin Towers office project by FY25.
4. Robust Hotel Segment: Brigade’s hotel segment continues to perform well, with Q1FY24 hotel revenue increasing by 13% YoY to INR 1.0 billion, and EBITDA growing by 31% YoY to INR 0.4 billion. The company is focused on strengthening Average Room Rates (ARRs), and upcoming MICE (Meetings, Incentives, Conferences, and Exhibitions) events are expected to boost demand. Hotel EBITDA is estimated to reach INR 1.4 billion in FY24E and INR 1.6 billion in FY25E, with the potential for INR 1.8 billion in stabilized annual EBITDA beyond FY25E.

Valuation:

• Brigade Enterprises retains a “BUY” rating with an unchanged target price of INR 695 per share, based on a valuation of 1x FY24E Net Asset Value (NAV).
• ICICI Securities recommended “Buy” for a target of INR 695.
• The company is expected to achieve strong residential sales bookings and rental growth, with key risks being prolonged weakness in office leasing and a slowdown in residential demand in South India.

Summary:

Brigade Enterprises’ strategic land acquisitions and aggressive growth plans position it for significant growth in the residential and rental sectors. With a solid performance in the hotel segment, the company is poised for a promising future in the real estate industry.

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