PEPL has reported a net profit of Rs1,153mn for 1QFY20, down 5.2% YoY and 17.1% QoQ. Residential sales volume at 1.21mn sqft decreased by 42% QoQ but increased by 9% YoY. Average realization at Rs7,119/sqft increased by 32% QoQ and 3% YoY. Rental income at Rs2,062mn increased by 5% QoQ and 12% YoY. EBITDA margin expanded by 455bps YoY and 965bps QoQ to 34.3%. We have maintained Buy rating on the stock with a target price (TP) of Rs341 (from Rs256 earlier), up 31% from the current market price.
Despite an encouraging quarter on collections, PEPL has seen further debt built up (due to asset portfolio stake consolidation), posing a challenge for the management in achieving optimal leverage. Further pending capex includes Rs 13bn/4-5bn for Office and Retail/ Hospitality respectively. One of the few positives is that ~60% of debt is backed either by annuity or by rental securitization/ bill discounting. Launches were largely tilted towards commercial projects. Asset stake sale is key for further re- rating. Retain NEU with Rs 286/sh TP.
We have valued PEPL at a discount of 20% (25% earlier) to FY21E NAV based on: 1) Concerns relating to closure of funding which is essential for completion of its planned commercial and retail projects. 2) Rising debt leading to an increase in interest expenses, thereby negatively impacting earnings. 3) Subdued residential real estate market and cost pressure, especially interest costs, which are expected to impact the residential segment’s cash flow. The rationale behind upgrading the target price by valuing at a 20% discount instead of 25% is the strong pipeline of rental assets yielding growth in rentable income. We have retained Buy rating on the stock with a target price of Rs341 (from Rs256 earlier), up 20% from the current market price.