Initiating Coverage | 24 December 2018 Sector: Real Estate Brigade Enterprises
Tactical Shift
Chintan Modi - Research Analyst ([email protected]); +91 22 6129 1554 Research Analyst: Lopa Thakkar - ([email protected]); Darshit Shah ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Brigade Enterprises
Contents: Brigade Enterprises | Tactical Shift
Summary: Tactical Shift ...... 3
Company overview...... 5
Leasing income to grow 2.6x by FY22E ...... 7
Hospitality income to grow 1.6x by FY21E ...... 15
South-centric quality residential real estate player ...... 20
Expect robust PAT CAGR of 19% over FY19E-21E ...... 26
SWOT analysis ...... 31
Valuation and view – Initiate coverage with a Buy ...... 32
Bull & Bear case ...... 34
Key risks ...... 35
Management overview ...... 36
Financials and valuations ...... 37
18 December 2018 2 Initiating CoverageBrigade | Sector: Enterprises Realty Brigade Enterprises BSE Sensex S&P CNX 35,470 10,664 CMP: INR206 TP: INR282 (+37%) Buy
Brigade Enterprises (BRGD) is an established real estate developer based in south India, with a presence in housing (standalone apartments and integrated lifestyle enclaves), leasing of office and retail spaces, and hospitality. Since its inception, BRGD has focused more on expanding its residential real estate arm. However, it is now reinventing itself by increasing its focus on expanding its leasing and hospitality portfolios. Stock Info Bloomberg BRGD IN Equity Shares (m) 1,361 Tactical Shift M.Cap.(INRb)/(USDb) 28.1 / 0.4 Focus on scaling up leasing portfolio 52-Week Range (INR) 324 / 157 BRGD appears all set for a tactical shift in its portfolio, with a clear focus on scaling 1, 6, 12 Rel. Per (%) 4/-5/-40 up the high-potential leasing business. The company aims to add ~4msf of leasable 12M Avg Val (INR M) 23 area to its portfolio over the next five years. Consequently, we expect a leasing Free float (%) 53.2 income CAGR (FY18-22) of 27% to INR6b (up by a significant 2.6x from FY18 levels). Financial Snapshot (INR b) In hospitality, BRGD is on track to increase the number of keys from 978 in FY18 to Y/E Mar FY19E FY20E FY21E 1,637 by FY21, strengthening earnings prospects. We expect EBITDA to increase Sales 27.0 28.0 29.9 from INR589m in FY18 to INR1,068m in FY21 (22% CAGR), also supported by scale- EBITDA 7.1 7.6 8.7 up of new hotels. NP 2.1 2.2 2.4 A strong brand name is a testament to its sharp focus on delivery of quality EPS (INR) 15.5 16.1 17.8 products and large enclave projects. BRGD has also forayed into affordable housing EPS Gr. (%) 45.2 3.8 10.7 to develop 4-5msf over the next 4-5 years. Added benefits would come in the form BV/Sh. (INR) 183.6 199.7 217.6 of tax exemption. We expect BRGD to sell a cumulative 7.8msf over FY19-21 for a P/E (x) 13.3 12.8 11.5 value of INR41b. P/BV (x) 1.1 1.0 0.9 RoE (%) 8.8 8.4 8.5 We have valued BRGD on SOTP basis. Its leasing portfolio contributes 52% of our RoCE (%) 7.6 7.3 7.6 GAV estimate, where for leasing assets we have applied discounting rate of 13% and a cap rate of 9%. We, thus, initiate coverage with a Buy and a TP of INR282 – an Shareholding Pattern (%) upside of 37%. Sep-18 Jun-18 Sep-17 Promoter 46.8 46.7 46.9 Growth prospects bright – focus on leasing portfolio DII 15.9 15.7 14.6 BRGD will add ~4msf of commercial space (office and retail) by FY21 over and FII 12.6 13.4 12.9 above its existing assets of 2.3msf. The company has a track record of building Others 24.8 24.2 25.7 quality assets – some of its iconic assets include WTC Bangalore/Kochi Phase-I FII Includes depository receipts and Orion Mall at Brigade Gateway. Among its major ongoing projects are Brigade Tech Gardens and WTC Chennai (SEZ projects) with a leasable area of Brigade Enterprises 2.5msf (Brigade’s share). Both these projects are likely to gain immediate Tactical Shift traction, given that they are eligible for tax exemption, which is to be availed by March 2020. We, thus, expect its leasing income to increase 2.6x from INR2.3b in FY18 to INR6b in FY22.
Stake sale in hotel portfolio to fund future capex BRGD has built a portfolio of 978 keys spread across five hotels (476 keys added in FY18) and will further operationalize another 659 keys in FY19-21, taking the total to 1,637 keys. Its two older hotels (Grand Mercure and Sheraton) have a [email protected] consistent track record in terms of occupancy (>70% over the last three years) Please click here for Video Link and room rentals. Occupancy at BRGD’s new hotel properties is likely to ramp up at a brisk pace as they are strategically located – near airports, in the GIFT City (Gujarat) or at its high-potential existing mixed-use development project, WTC
24 December 2018 3 Brigade Enterprises
Stock Info commercial assets. BRGD has demerged the operational hotels into a separate company and plans to dilute its stake in this company to a strategic investor to fund hotel capex.
Residential real estate sector to recover; affordable housing an opportunity With its strong footprint, BRGD has created a strong brand in Bangalore’s micro market. We expect BRGD to sell 7.8msf over FY19-21 for a value of INR41b, backed by its promising line-up of launches. Additionally, BRGD is likely to leverage its past
experience in developing the current three ongoing enclave projects, which we believe would help in positioning its products well and leveraging synergies among assets, creating value for itself. Capitalizing on its brand image, BRGD targets to develop 4-5msf under affordable housing over the next five years. Currently, projects with a ticket size of up to INR6m/unit account for 30% of the ongoing projects. These relatively small ticket-size projects are estimated to be 50% of upcoming projects (in terms of area). The move is also beneficial as it offers tax exemptions. BRGD has 75% of its land located in the promising Bangalore market.
Valuation and view BRGD has an established track record of over 20 years in the real estate business. It is a well-known real estate developer based in south India, with a portfolio of projects spread across the residential, commercial and hospitality segments. Previously a predominant residential player, it is now focusing on increasing its leasing and hospitality business, which we believe can act as a key growth catalyst. We have valued BRGD’s leasing assets by applying a discounting rate of 13% and a cap rate of 9% – leasing assets contribute 50% of our GAV. Our SOTP value for BRGD is INR38b, which translates into a target price of INR282/share. We believe BRGD is poised for the next leg of growth with the increase in annuity portfolio. The stock trades at (a) 12.8x FY20E and 11.5x FY21E EPS, (b) 1.0x FY20E and 0.9x FY21E BV and (c) EV of 8.9x FY20E and 7.4x FY21E EBITDA. We initiate coverage with a Buy rating and an SOTP-based target price of INR282 – upside of 37%.
Exhibit 1: NAV calculation Per share NAV Calculation Method Metrics INR m % (INR) Real Estate DCF DF-13% 10,744 79 18% Leasing DCF DF-13%, Cap -9% 30,950 227 50% Hospitality EV/EBITDA 10x FY20E 8,843 65 14% Land Bank Value Amount paid for 10,794 79 18% Gross Asset Value 61,332 451 100% Less: Net Debt 23,012 169 38% Net Asset Value 38,320 282 62% CMP 206 Up/down (%) 37%
Source: Company, MOSL
24 December 2018 4 Brigade Enterprises
Company overview
BRGD is a well-known real estate developer based in South India, with a diversified portfolio of projects spread across the real estate, leasing, and hospitality businesses. Its real estate business includes standalone apartment properties and integrated lifestyle enclaves, which are conceptualized as self-contained, gated communities that generally include a combination of apartment complexes, luxury villas, townhouses, commercial and retail space, recreational clubs, parks, schools, and convention centers. BRGD’s leasing business includes commercial office spaces, special economic zones (SEZs), and software and IT parks. The company also develops hospitals and retail malls with entertainment facilities such as multiplexes. BRGD’s properties in the hospitality business include serviced residences, hotels, recreational clubs, and convention centers.
Since BRGD’s inception in 1995, it has historically concentrated in the Bengaluru Metropolitan Region, but the company has gradually expanded presence to other cities in South India, such as Chennai, Hyderabad, Kochi, Mangalore, Mysuru, and GIFT City, Gujarat.
Exhibit 2: BRGD, a Bengaluru-centric real estate player, expanding presence in South India
Bengaluru, Karnataka Mangaluru, Karnataka Mysuru, Karnataka Chikmagaluru, Karnataka Hyderabad, Telangana Chennai, Tamil Nadu Kochi, Kerala GIFT City, Gujarat
BRGD's land area distribution (acres)
6% 1% Bangalore 4% 3% Chennai 2% Hyderabad 9% Kochi Mangalore 75% GIFT Mysore
Source: Company, MOSL
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Exhibit 3: BRGD boasts of diversified business segments Real Estate Lease Rental Hospitality •Residential •Office space •Hotels •Office space on •Retail space •Clubs and outright sales convention centers
Source: Company, MOSL
In the real estate business, BRGD develops and sells residential and commercial spaces. Over the last four years, the company has successfully completed more than 15 projects with an aggregate saleable area of more than 6msf.
BRGD develops commercial projects (offices and retail space) and generates revenue primarily by leasing units at such properties. After constructing World Trade Center at Brigade Gateway in Bengaluru (launched in November2010) and Phase-I of World Trade Center in Kochi (launched in February 2016), it is now developing Phase-II of World Trade Center in Kochi. It is also constructing World Trade Center in Chennai. This apart, the company has the license to construct World Trade Centers in Hyderabad and Trivandrum, which we believe would position BRGD as a premium office space developer in India.
BRGD began its shopping mall operations with the launch of Orion Mall at Brigade Gateway in January 2012, and then Brigade Orion East in Bengaluru in June 2016. It is developing one more mall, Orion OMR, at Old Madras Road in Bengaluru.
As part of its hospitality business, BRGD develops serviced residences, hotels, lifestyle membership clubs, and convention centers. It owns three hotel properties in Bengaluru (the Grand Mercure, the Sheraton Hotel, and Holiday Inn Express), one hotel property at Mysuru (the Grand Mercure), and one in Chennai (Holiday Inn). BRGD is developing five more hotel properties in Bangalore, Kochi, Mysore and Gujarat. The company operates hotels through management contracts with leading international hospitality service providers.
Exhibit 4: Revenue mix across segments – FY18 Exhibit 5: EBITDA contribution across segments – FY18 FY18
11% 10% Real Estate 15% Residential Real Estate Lease Rental 33% Lease Rentals 57% Hospitality Hospitality 74%
Source: Company, MOSL Source: Company, MOSL
24 December 2018 6 Brigade Enterprises
Leasing income to grow 2.6x by FY22E Leasing portfolio to expand from 2.3msf in FY18 to 6msf by FY21E
BRGD has 2.3msf of leased area, with ~95% occupancy and average lease income of INR2.3b. It has ~4msf of commercial and retail projects (its share) under execution, which should add INR3.7b of annuity income by FY22E, taking total income to INR6b. BRGD’s key ongoing projects are expected to gain traction quickly, as (i) Brigade Tech Garden offers tax advantages (SEZ exemption) for tenants, (ii) WTC Chennai (SEZ exemption) and Kochi (phase-II) have global brand associations (WTC, USA) and (iii) Orion Mall would be located at Brigade Golden Triangle, its integrated development project. The total capex (incremental) commitment towards building all the ongoing assets is INR8.7b (BRGD share), which will be funded through a mix of debt and equity (intended D/E ratio of 2:1), the funding for the project has been tied-up. With tangible benefits arising out of SEZs and WTC brand recall, we expect pre-leasing of these assets to launch effortlessly. Bangalore’s commercial and retail malls have had the lowest vacancy in the last nine years of 7% and 4% respectively, thus is indicative of the opportunity for BRGD to capitalize on.
Leasing income to increase from INR2.3b in FY18 to INR6b by FY22E BRGD has 2.3msf of leasable area, with ~95% occupancy and average rental of INR2.3b. It has ~4msf of commercial and retail projects (its share) under execution, which are likely to add INR3.7b of annuity income by FY22E, taking total income to INR6b. Key contributors from existing assets include (a) WTC Bengaluru (0.6msf) and WTC Kochi (0.4msf) – commercial assets, and (b) Orion Mall (0.8msf).
Exhibit 6: BRGD’s leasing portfolio – completed and ongoing projects Leasable Area Project Name Location Type Completion Date (BRGD’s share) (msf) Completed WTC Bangalore Bangalore Commercial Completed 0.64 Orion Mall at Brigade Gateway Bangalore Retail Completed 0.82 Orion East Mall Bangalore Retail Completed 0.15 WTC, Kochi - Phase I Kochi Commercial Completed 0.39 Others Completed 0.05 Bhulwalaka Icon Bangalore Commercial Completed (FY18) 0.19 Brigade Vantage Bangalore Commercial Completed (FY18) 0.07 Total 2.31 Ongoing/ Planned Est. Cost Incurred Balance WTC Phase II Kochi Commercial FY19 1030 904 126 0.39 Brigade Opus Bangalore Commercial FY19 2000 1927 73 0.35 Brigade Broadway Bangalore Commercial & Retail FY19 420 391 29 0.03 Brigade Orion Bangalore Retail FY20 1935 608 1327 0.28 Brigade Tech Gardens* Bangalore Commercial FY20 11300 3733 7567 1.53 WTC Chennai* Chennai Commercial FY21 8000 1457 6543 1.02 Total 3.6 Grand Total 5.91 *Through 51% SPV Source: Company, MOSL
24 December 2018 7 Brigade Enterprises
Exhibit 7: Leasing income (BRGD’s share) to grow at 27% CAGR over FY18-22E
Leasing Income (excl CAM) (INRb) Leased Area (msf)
5.9 6.2
3.4 2.6 2.3
2.3 2.7 3.4 5.6 6.1
FY18 FY19E FY20E FY21E FY22E
Source: Company, MOSL
Exhibit 8: Leasing income to grow on the back of Brigade Tech Gardens and WTC Chennai WTC - Chennai 6% 3%1% 7% Brigade Tech Gardens, SEZ 8% 6% 3% 17% 17% 7% 7% Brigade Orion OMR 5% 6% 20% 20% GIFT City Tower 1 Brigade Opus 46% 42% 3% 3% 6% 5% WTC, Kochi - Phase II 34% 3% 3% 4% 4% Bhulwalaka Icon 22% 21% Brigade South Parade 32% WTC, Kochi - Phase I 29% 24% 15% 15% Orion East Mall Orion Mall at Brigade Gateway FY18 FY19E FY20E FY21E FY22E WTC Bangalore Source: Company, MOSL
Existing assets generate steady rentals of INR2.3b per annum as of FY18 Key contributors from the existing leasing assets are located at Brigade Gateway (Orion Mall and WTC Bengaluru), which is BRGD’s mixed-use enclave project spread across 40 acres. It includes a mall, commercial space, hotel, school, and residences.
(A) Orion Mall – launched in January 2012 Orion Mall, with 0.82msf of retail space, is the most sought-after retail destination in West Bengaluru (part of Brigade Gateway project). It has enjoyed consistent occupancy of 95% over the past three years, with major brands such as GAP, Forever 21, Zara, Westside, Landmark, Bangalore Central, Shoppers stop, Reliance Digital, Hypercity, RmKV Silks, Smaaash, PVR - Multiplex as tenants. Lease agreements are typically renewed in 3-9 years, with rent revisions of 5% annually or 15% every three years.
(B) WTC Bengaluru – launched in November 2010 WTC Bengaluru, with 0.64msf of office space is a grade-A, 30-storied office project which houses tenants like Amazon, Kalyani Geradu, Gerdau Steel, Bank of Tokyo / MUFG Bank, Hitachi India, Toyota Tsusho India, ABB India, Canadian High Commission, Mckinsey & Company, Prolim Solutions India. It is also a part of the Brigade Gateway project.
24 December 2018 8 Brigade Enterprises
Exhibit 9: BRGD’s WTC Bengaluru commercial space Exhibit 10: BRGD’s Orion Mall
Source: Company, MOSL Source: Company, MOSL
Exhibit 11: Master plan of Brigade Gateway spread across 40 acres – one of the first lifestyle enclaves in Bengaluru
Source: Company, MOSL
24 December 2018 9 Brigade Enterprises
(C) WTC Kochi Phase-I – located in the heart of the IT hub WTC Kochi Phase-I, with 0.39msf of office space, is located at Kochi Infopark. It is located in the heart of the IT hub of Kakkanad, with state-of-the-art infrastructure, easy accessibility, grade-A specifications, and Leed Gold precertification. Additionally, BRGD is coming up with its second tower of 0.39msf, which is expected to be operational by FY19.
World Trade Center brand to help gain traction from tenants Founded in 1968, the New York-headquartered World Trade Centers Association (WTCA) comprises about 330 WTCs spread over 100 countries. Over 1m international organizations are associated with these WTCs. The idea spans across the globe for enterprises seeking opportunities to extend their activities around the world. WTCA has created an international trading network that opens up new economic spheres and sales territories.
WTC – an attractive commercial destination for businesses across the globe There are two common aspects of any WTC that make it an attractive destination: (A) a physical facility with a world-class tenant list, and (B) trade-related services that are offered to tenants.
With the WTC brand, tenants across the globe are assured of a pre-defined set of infrastructure and services. Hence, BRGD’s WTC commercial projects are expected to gain traction going ahead on the back of the WTC brand association.
WTC advantage for tenants WTC brand: The WTC brand name, along with high-image events and large volume of people who visit the WTCs, provides implicit value to tenants. Concentration of services: The WTCs consolidate international trade agencies and private sector firms involved in global trade and commerce, providing single point access. Redevelopment impact: Because of the scale of activity or government sponsorship, WTCs in most cases upgrade local real estate patterns. Economic impact: With hotel, conference and exhibition facilities, WTCs attract substantial out-of-town visitors, producing a positive impact for communities.
Exhibit 12: Stable occupancy of BRGD’s existing assets Orion Mall WTC Bangalore WTC Kochi
99% 98% 100% 91% 94% 96% 100% 99% 99% 91% 96% 84% 75% 63% 45%
FY13 FY14 FY15 FY16 FY17 FY18 Source: MOSL, Company
24 December 2018 10 Brigade Enterprises
Gross leasing income to jump 2.6x on addition of ~4msf of rental space BRGD has 4msf of ongoing commercial and retail projects, all of which are likely to get operational over FY18-21. These new projects are expected to generate incremental leasing income of INR3.7b by FY22E. Key projects in the pipeline include (i) Brigade Tech Garden (3.3msf), (ii) WTC Chennai (2msf), and (iii) WTC Kochi (0.39msf), which are expected to be the larger drivers of incremental leasing income. With an overall leasing area of 6.2msf, all these assets put together are expected to generate over INR6b of leasing income in FY22E. The capex towards the development of these commercial spaces is expected to be INR8.7b (BRGD share) and will be incurred over FY19-21. Moreover, the Company, through its wholly- owned subsidiary has acquired a property measuring 12.95 acres from SABMiller India Limited at North Bengaluru for INR2.2b. This property will be developed into office space and presently the approval process is under progress.
(A) Brigade Tech Gardens, a landmark SEZ project, to see optimum occupancy in 1st year itself BRGD’s Brigade Tech Gardens is a JV with Government of Singapore Investment Corp Pte Ltd (GIC). With leasable area of 3.3msf (BRGD’s share: 1.68msf), it is one of BRGD’s key projects and is expected to see huge traction due to its special economic zone (SEZ) status. Notably, due to the sunset clause, the project is expected to reach optimum occupancy in the first year itself, particularly as companies operating here will avail tax exemption for 15 years. The company has pre-leased 0.15msf.
The Sunset Clause on SEZ’s and why it is important? Under this clause, benefits provided include - 15 year corporate tax holiday on export profit – 100% for initial 5 years, 50% for the next 5 years and up to 50% for the balance 5 years equivalent to profits ploughed back for investment. Following the sunset clause introduction in the 2016 Budget, SEZs will not be entitled to any benefit post March 31, 2020. However, units starting operations before March 31, 2020 would be entitled to income tax exemption. Additionally, companies operating in the SEZ would not be charged GST. These should act as incentives for the tenants. Given that tenants beginning operations before FY20E in Brigade Tech Garden would be entitled for tax benefit for 15 years despite the sunset clause, we expect the project to see substantial occupancy in FY20E itself.
(B) WTC Chennai – ‘WTC’ brand recall to aid occupancy BRGD’s WTC Chennai project, a JV with GIC is a 2msf (BRGD’s share: 1.02msf) project. It will be the tallest commercial establishment in the city, with a complete business ecosystem including residences and hotel space. WTC Chennai will be a Grade A++ commercial development, strategically located in the IT hub on OMR. The brand recall for WTC project –lends comfort on expected high traction for the leasing projects.
(C) Brigade Opus: Brigade Opus is a 0.35msf commercial office project strategically located on International Airport Road and is connected to the Central Business District and rest of Bengaluru. It complies with Grade-A specifications and is LEED Gold pre-certified. The project is expected to be completed by FY19.
24 December 2018 11 Brigade Enterprises
(D) Brigade Golden Triangle – a mixed use development project Brigade Golden Triangle is the only mixed-use development located on Old Madras Road, Bengaluru. It comprises of residential apartments, hotel and retail complex. It is strategically located in one of Bengaluru's fastest developing growth corridors, with connectivity to three prominent hubs – Whitefield, MG Road, and the Airport. BRGD has planned Orion Mall, with 0.28msf, which is expected to gain traction due to the mixed-use development.
Exhibit 13: BRGD’s Golden Triangle Exhibit 14: Connectivity of BRGD’s Golden Triangle project
Source: Company, MOSL Source: Company, MOSL
Exhibit 15: Master plan of Brigade Golden Triangle project spread across 18 acres – it is BRGD’s lifestyle enclave
Orion Mall (0.28msf)
Holiday Inn Hotel (134 keys)
Source: Company, MOSL
24 December 2018 12 Brigade Enterprises
BRGD holds exclusive license to construct WTC projects in Hyderabad and Thiruvananthapuram BRGD pays an annual license fee per asset to operate commercial assets under the WTC brand. After constructing a WTC at Brigade Gateway in Bengaluru (launched in November 2010) and Phase-I of WTC Kochi (launched in February 2016), the company is now developing Phase-II of WTC Kochi and all new WTC Chennai. Moreover, it has the license to construct WTCs in Hyderabad and Thiruvananthapuram.
Exhibit 16: BRGD’s WTC Chennai Exhibit 17: BRGD’s Tech Garden City, SEZ Bangalore
Source: Company, MOSL Source: Company, MOSL
Exhibit 18: Ongoing projects plan and capex commitment (INR m) Incurred as Estimated date of Commercial Projects Est. cost Balance % Completed of 2QFY19 project completion Brigade Opus 2,000 1927 73 96% Q3FY19 WTC, Kochi ‐ Phase 1,030 904 126 83% Q4FY19 Brigade Orion OMR/Holiday Inn Express (134 keys) 1,935 608 1,327 55% Q3FY21 Brigade Broadway 420 391 29 93% Q3FY19 Brigade Tech 11300 3733 7567* 25% 2QFY20 Gardens* World Trade Centre, Chennai* 8000 1457 6,543* 13% 2QFY20 Total 24,685 9,020 15,665 37% *Through 51% SPV Source: Company, MOSL
24 December 2018 13 Brigade Enterprises
Bengaluru remains a buoyant commercial and retail market
Exhibit 19: Bengaluru accounts for 92% of BRGD’s leasing Exhibit 20: Bengaluru to account for 73% of BRGD’s leasing income income by FY22E
FY18 FY22E 8% 3% 16% Bangalore Bangalore Kochi 8% Kochi Chennai 73% Gujarat 92%
Source: Company, MOSL Source: Company, MOSL
Bengaluru commercial market vacancy at 7%, lowest in nine years
Exhibit 21: Rentals/sf grew over last 8 years Exhibit 22: Lowest vacancy in last nine years
Rentals INRpsfpm Growth (%) Inventory (msf) Vacancy (%) 28% 8% 25% 7% 7% 6% 18% 5% 14% 15% 4% 11% 9% 9% 2% 2% 7%
42 43 44 46 49 52 56 58 62 19.5 26.5 18.8 15.8 17.5 14.8 13.1 13.0 11.9
2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Industry, MOSL Source: Industry, MOSL
Bengaluru mall market vacancy at 4%, lowest in nine years
Exhibit 23: Rentals/sf grew at modest pace over last 8 years Exhibit 24: Lowest vacancy in last nine years
Rentals psfpm Growth (%) Inventory (msf) Vacancy (%) 12% 5% 6% 11% 4% 5% 3% 2% 8% 8% 8% 2% 7% 7% 0% 6% 4%
84 88 93 98 100 102 107 110 110 0.5 0.4 1.2 0.9 0.9 1.0 0.9 0.9 0.5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Industry, MOSL Source: Industry, MOSL
24 December 2018 14 Brigade Enterprises
Hospitality income to grow 1.6x by FY21E Hotel keys to increase 1.6x from 978 in FY18 to 1,637 by FY21E
BRGD has a built a portfolio of 978 keys spread across five hotels (476 keys added in FY18) and will operationalize another 659 keys in FY19E-21E, taking the total to 1,637 keys. We expect EBITDA to increase from INR589m in FY18 to INR1,068m in FY21E, which will continue to surge, as new hotels scale up occupancy. BRGD’s older two hotels – Grand Mercure and Sheraton – have exhibited a consistent track record in terms of occupancy (>70% in the last three years) and room rentals. Occupancy at its new hotel properties should increase at a faster pace, as they are strategically located – near airports, in the GIFT City, Gujarat, or at its high potential existing mixed-use development project, WTC commercial assets. BRGD has demerged its operational hotels into a separate company and is planning to dilute its stake in this company to a strategic investor to fund its hotel capex plans. Over the last five years, hotels across the top 10 cities in India have seen a continuous increase in occupancy and RevPAR. In particular, the Bengaluru and Chennai markets have seen consecutive increase in RevPAR over the last three years. Post completion of all the hotels, BRGD will have six of its ten hotel properties in Bengaluru and Chennai. We believe it will be well placed to capitalize on the opportunity. Hospitality income to grow at 22% CAGR over FY19E-FY21E to INR3.9b BRGD has built a portfolio of five hotels comprising 978 keys over the past few years. Of the 978 keys, ~50% (476 keys) were added in FY18 alone. It intends to add 659 keys over FY19E-FY21E, taking the total to 1,637 keys over FY19E- FY21E. We expect room rentals to grow at 19% CAGR from INR2.3b in FY18 to INR3.9b in FY21E, which should drive 22% EBITDA CAGR from INR589m in FY18 to INR1,068m in FY20E. These hotels are expected to continue scaling occupancy rates, and therefore, driving efficiencies. BRGD has also been one of the pioneers in the concept of professionally managed serviced apartments (Homestead Serviced Residences) in Bengaluru, which reflects its ability to scale up operations successfully. Exhibit 25: BRGD’s completed, ongoing, and planned hotel assets Hotel and location City Status and Completion date No. of Keys Completed Grand Mercure, Koramangala Bangalore Completed 126 Sheraton, Brigade Gateway Bangalore Completed 230 Grand Mercure Mysore Completed 146 Holiday Inn, Taramani Chennai Completed (FY18) 202 (BRGD's share 50%) Holiday Inn Express, Race Course Road Bangalore Completed (FY18) 274 Total 978 Ongoing Four Points by Sheraton Kochi FY19 218 Holiday Inn Express, Golden Triangle Bangalore FY20 132 Ibis styles, Mysore Karnataka FY21 151 Ibis styles, GIFT City Gujarat FY20 158 Total 659 Planned Ibis Styles , Near Airport Bangalore - 150 Brigade Tech Gardens Bangalore - 120 Total 270 Grand Total 1907 Source: MOSL, Company
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Exhibit 27: Bengaluru and Chennai constitute >50% of Exhibit 26: BRGD to multiply hotel keys by 1.6x by FY21E BRGD’s total hotel keys
Bangalore Mysore Chennai Kochi Gujarat Bangalore Mysore Chennai Kochi Gujarat
158 18% 11% 10% 29% 21% 158 218 15% 13% 218 15% 17% 12% 218 202 14% 202 12% - 297 10% 18% 202 202 146 146 146 71% - 64% 146 53% 51% 630 630 762 762 47% 356
FY17 FY18 FY19E FY20E FY21E FY17 FY18 FY19E FY20E FY21E Source: Company, MOSL Source: Company, MOSL
Exhibit 28: Hospitality income to grow at CAGR of 22% over FY18-21E
Hospitality (INRb) Growth (%)
26% 23% 17%
9% 7%
1.8 1.9 2.4 2.8 3.5 3.8
FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL Established track record provides comfort on ability to quickly scale up newer hotels BRGD owns five hotel properties, of which three have commenced operations only over the last two years and are currently in the stabilization phase. The other two hotel properties – Grand Mercure and Sheraton Bangalore (both in Bangalore) – together have 356 keys and are operated by world-leading hotel operators. Grand Mercure is managed by Accor Group, while Sheraton Bangalore is managed by Starwoods. Both hotels are centrally located in close proximity to the key business centers and IT parks of North and West Bangalore. Hotel Sheraton is situated in the enclave of Gateway, which also houses World Trade Center. Strong location advantage and management by reputed operators have resulted in quick ramp-up in occupancy and average rentals per day, thus driving profitability. Exhibit 29: Stable occupancy and room rentals trend Particulars FY13 FY14 FY15 FY16 FY17 FY18 Grand Mercure No of Keys 126 126 126 126 126 126 Occupancy (%) 82% 86% 78% 82% 73% 71% Avg Room Rate/ day (INR) 6,682 6,558 6,757 6,470 6,666 6,898 Sheraton Bangalore No of Keys 230 230 230 230 230 230 Occupancy (%) 63% 75% 72% 82% 81% 77% Avg Room Rate/ day (INR) 7,603 7,633 7,811 7,600 8,258 8,434
Source: Company, MOSL
24 December 2018 16 Brigade Enterprises
Exhibit 30: BRGD’s Hotel Sheraton, Bengaluru Exhibit 31: BRGD’s Grand Mercure Hotel, Bengaluru
Source: Company, MOSL Source: Company, MOSL
Location, a key advantage for new hotels, to drive footfalls and occupancy Income from the hospitality segment is expected to grow at 22% CAGR from INR2.1b in FY18 to INR3.9b by FY21E, primarily driven by addition of eight new hotels. Prime location and good execution will be the key drivers for growth in occupancy rates. Broadly, the benchmark for hotel investment is ~INR7m/key for a 3-star property, INR7.5m/key for a 4-star property, and INR8m/key for a 5-star property. BRGD attributes its hotels’ success to its cost rationalization and high occupancy rates, driven by locational advantage.
Exhibit 32: Locational advantage of the hotels to aid in maintaining /scaling occupancy Expected Project Hotel Name Location No. of Keys Locational Advantage Completion Year Operational Grand Mercure, Located in the upmarket Koramangala area 5km away from IT parks at Bangalore Completed 126 Koramangala the business district Sheraton, Brigade Part of its 40 acres mixed use development 'Brigade Gateway' project Bangalore Completed 230 Gateway which houses Orion Mall, WTC, residential and schools Grand Mercure Mysore Completed 146 Located at heart of the city on the famous Dasara Procession pathway Holiday Inn Express, Completed 202 (BRGD's Chennai Located at Taramani on the IT Corridor Taramani (FY18) share - 101) Holiday Inn Express, Completed Located at Sheshadri Road across Bangalore turf club with view of Bangalore 274 Racecourse (FY18) Bangalore Racecourse Total 978 Planned / Under Construction Four Points by Kochi FY19 218 Campus of the WTC Kochi Sheraton Excellent connectivity to Airport, Whitefield and M G Road. Part of its Holiday Inn Express, Bangalore FY20 132 18 acres mixed use development 'Brigade Golden Triangle' project Golden Triangle which has residential, mall (ongoing). Ibis styles, GIFT City Gujarat FY20 158 Only hotel property located in GIFT City, Gujarat Ibis styles, Mysore Karnataka 151 Total 659
Grand Total 1,637 Source: Company, MOSL
24 December 2018 17 Brigade Enterprises
Exhibit 33: Ongoing projects plan and capex commitment (INR m) Incurred as Planned No. Commencement Hotels Est. cost Balance of 2QFY19 of Keys of Operations Four Points by Sheraton, Kochi 1330 1286 44 218 4QFY19 Ibis Styles, Gift City 1140 592 548 159 3QFY20 Ibis Styles Mysore 730 92 638 151 1QFY21
Total 3,200 1,970 1,230 528 Source: Company, MOSL
Awarded development rights for mixed development in Gift City On the back of its successful track record in developing integrated projects, BRGD has been awarded development rights for 1.1msf – commercial (0.31 msf), and hotel projects (0.1msf) – in the Gujarat government project, GIFT City. Proximity to the fast-growing Delhi-Mumbai Industrial Corridor (DMIC) and government support are expected to generate strong demand for this project.
Exhibit 34: Brigade IFSC, GIFT City, Gujarat Exhibit 35: Ibis Styles Hotel, GIFT City, Gujarat
Source: Company, MOSL Source: Company, MOSL
Decline in supply supporting higher occupancy and room rent for hotels Over the last 15 years, the hotel market in India has gone through a full economic cycle of strong growth followed by a slowdown. Over 2004-08, hotel markets in the country saw strong growth, propelling large-scale development of new hotel rooms. This quickly turned with the onset of the Global Financial Crises in 2008, immediately followed by concerns emerging from the domestic political and economic climate. Combined with the large increase in hotel room supply, the impact on the sector was severe. Over 2009-14, hotels witnessed a decline in both occupancy and REVPAR. The Indian hospitality sector has started to show signs of revival in terms of increased occupancy and higher room rentals, with the Bengaluru and Chennai markets performing well. BRGD has over 50% of its hotel keys located in these cities and will be a key beneficiary (refer exhibit 25).
24 December 2018 18 Brigade Enterprises
Exhibit 36: REVPAR and occupancy are on a rising trend
REVPAR Overall average occupancy
69% 72% 71% 69% 65% 63% 66% 57% 57% 57% 60% 60% 61% 59% 58% 58% 60% 55% 54% 52% 2,276 2,162 1,889 2,134 1,789 1,870 2,313 2,966 3,892 5,049 5,496 4,598 3,861 3,947 3,575 3,343 3,275 3,310 3,499 3,709 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: HVS Research, MOSL
Exhibit 37: Bengaluru and Chennai markets have seen an increase in RevPAR in the last three years
Source: JLL, MOSL
24 December 2018 19 Brigade Enterprises
South-centric quality residential real estate player Expect pre-sales of 5msf over FY19 and FY20
We expect pre-sales of 7.8msf over FY19E and FY21E with booking value of INR41b on account of BRGD’s launch line-up. In FY18, BRGD had clocked pre-sales of INR8.9b against INR9.5b in the preceding FY17 – down 6%, as the company had decided not to market its projects during the transition phase under RERA. We expect normalization, going ahead. BRGD has successfully completed 2 enclave projects and is expected to replicate the success of the same in its 3 ongoing enclave projects. Being integrated development projects, these consist of residential units along with commercial real estate such as malls, hotels and offices in the same vicinity - which aids in better product positioning and leveraging synergies among the assets thereby creating value for itself. Capitalizing on its brand image, BRGD targets to develop 4-5msf under affordable housing, also marking its entry into this segment, over the next five years. The move is also beneficial, as it offers income tax exemption benefits. Post RERA and GST, both launches and sales have declined, but launches have declined faster than sales, leading to a decline in total inventory in the last two years in the Bengaluru market. Declining supply and stable demand would provide players like BRGD an opportunity to capitalize upon. Lined-up launches to help scale up pre-sales BRGD’s real estate segment comprises of residential apartments and commercial spaces meant for sale. The residential apartments are designed for customers in the value homes, middle-income housing, and high-income housing segments. BRGD has completed 11 projects across Bengaluru and Mysuru, and is in the process of completing ongoing projects spread across Bengaluru, Hyderabad, Mysuru and Mangalore (including three integrated enclaves). Some of BRGD’s prominent projects include Brigade Meadows, Brigade Rubix, Brigade Caladium, Brigade Exotica, and Brigade Magnum; these projects have helped the company in creating a superior brand and also win awards at various events. We expect pre-sales of 7.8msf over FY19-FY21 with booking value of INR41b on account of BRGD’s launch line-up. In FY18, pre-sales volume declined by 4% to 1.57msf from 1.63msf in FY17, as the company took a conservative call of not marketing its projects during the transition phase under RERA; we expect normalization, going ahead. In FY19, BRGD intends to launch 4-5msf in the affordable housing segment. Exhibit 38: Pre- sales to grow at 21% CAGR over FY18-21E
Booking Value (INRb) Pre Sales Volume (msf)
2.8 2.9 2.6 2.6 2.2 2.2 1.9 1.6 1.6
7.9 13.4 14.2 12.5 9.6 9.0 10.9 13.7 16.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL
24 December 2018 20 Brigade Enterprises
Exhibit 39: Projects under development as of September 2018 (area in msf) Real estate Projects Project area JV area share Brigade share Real estate Projects 9.3 2.0 7.3 Brigade Orchards - BCV* 2.3 1.1 1.1 Total 11.6 3.1 8.4 *Special purpose vehicle (SPV) Source: MOSL, Company Shift of focus to smaller ticket size projects - 60% of upcoming saleable area About 35% of BRGD’s ongoing projects by area comprise sales from units of larger ticket size of over INR10m+. Projects with ticket size ranging from INR6m to INR10m account for 35% of the ongoing projects by area while projects with ticket size of upto INR6m account for 30% of the ongoing projects. The company plans to launch another 4-5msf of affordable housing projects over FY19 and FY20. This indicates that there is a clear shift in focus from high value ticket size projects to relatively lower ticket size projects which in line with the broader industry trend. Smaller ticket size (Upto INR6m/unit) projects are estimated to be 50% of upcoming projects by area (refer below exhibit). Exhibit 40: Ongoing projects – 30% are Upto INR6m Exhibit 41: Upcoming projects – 60% to be upto INR6m/unit Ticket size Ongoing Projects Upto INR6m 30% Upto INR6m ticket size INR6m lakh to INR10m 35% 50% INR10m to INR15m 20% 30% INR15m+ 15% Source: MOSL, Company Source: MOSL, Company
Exhibit 42: Planned affordable housing projects of about 4msf (ticket size upto INR6m) Project name Developable Area (msf) Brigade Bricklane 0.71 Brigade Parkside @ Sarjapur 0.54 Brigade Parkside @ Mysore Road 0.29 Brigade Parkside @ Kanakapura ‐ Phase I 0.38 Brigade Sapphire 0.46 Brigade Sanatnagar Phase I 0.5 Brigade El Dorado Phase I 0.13 Brigade Orchards Kino 0.11
Total 4.0 Source: MOSL, Company Leveraging experience in destination-based development BRGD has developed integrated lifestyle enclaves, which has proven to be a successful business model for the company in the real estate market in South India. It is currently developing three integrated lifestyle enclaves. The integrated lifestyle enclaves have been successful due to changing lifestyles and consumer trends in the real estate market. BRGD intends to capitalize on this experience to develop additional integrated lifestyle enclaves and gated communities in South India. Its ongoing integrated lifestyle enclave projects – Brigade Golden Triangle, Brigade Meadows and Brigade Orchards – offer a diverse range of facilities such as office space, residential apartments, recreational clubs, parks, hospitals, hotels, schools and retail malls. BRGD intends to develop integrated lifestyle enclaves in cities such as Chennai, Hyderabad, GIFT City (Gujarat), and Mysuru, where it has acquired land or seeks to acquire land.
24 December 2018 21 Brigade Enterprises
Large-scale enclave projects help the company to develop attractive city-centric locations in line with customer preferences. With multiple facilities, including residences, schools, hospitals, malls and hotels, such projects allow the company to (i) position its products better, and (ii) leverage synergies among different asset classes and command premium pricing.
Completed integrated lifestyle enclaves 1. Brigade Metropolis Enclave: BRGD has developed the project, which spreads over 36 acres and has residential saleable area of 2.63msf along with two office towers and a shopping center with saleable area of 1.03msf and other facilities. 2. Brigade Gateway Enclave: BRGD has developed the project in central Bengaluru. It is spread over 40 acres of land and comprises of (a) 2.7msf residential saleable area, (b) 0.82msf Orion mall and multiplex, (c) the 230-key Sheraton Grand Bangalore Hotel – Brigade Gateway, (d) the 0.18msf Columbia Asia Hospital, (‘e) the 0.82 World Trade Center, Bengaluru, and (f) the 0.11msf Brigade School.
Ongoing integrated lifestyle enclaves 1. Brigade Orchards: The integrated lifestyle enclave was launched in 2012 and is expected to be completed by 2021. Brigade Orchards is located at Devanahalli, Bengaluru and is spread over approximately 130 acres of land. The enclave will house luxury villas and apartment units, sports arena, a signature club resort, chip & putt golf, proposed arts village, proposed hospital, and a commercial area with space for offices, shops and restaurants. The signature club resort is spread over 0.09msf and comprises of luxury rooms, gym, restaurant, café, and sports facilities for squash, badminton, table tennis, billiards and tennis. BRGD’s Orchards projects are under its SPV, wherein BRGD holds 50% stake and Classic Group holds the balance. 2. Brigade Meadows: BRGD commenced the development of the integrated lifestyle enclave in 2012 and is expected to complete the residential portion of this project by 2018. Brigade Meadows is located at Kanakpura Road, Bengaluru and is spread over 60 acres of land. Upon completion, the enclave will comprise of residential units, a shopping center, a school, and a hospital. The enclave will also offer its residents various lifestyle amenities such as a clubhouse, tennis, badminton and basketball courts, and children’s play areas. 3. Brigade Golden Triangle: BRGD commenced the development of the enclave project in 2013 as a joint development project and the project is expected to be completed by 2019. Located at Old Madras Road, Bengaluru, Brigade Golden Triangle is spread across 17 acres, which will house 672 apartments spread over six blocks and offer its residents a range of lifestyle amenities such as a clubhouse, swimming pool, indoor games zone, and many more. The enclave will also house premium office spaces, retail complex and hotel.
24 December 2018 22 Brigade Enterprises
Exhibit 43: Key completed and ongoing integrated enclave projects Completed Location Completion Year Brigade Metropolis Whitefield, Bangalore 2010 Brigade Gateway Malleswaram, Bangalore 2012 Ongoing Location Start Year Expected Completion Brigade Orchards Devanhalli, Bangalore 2012 2023 Brigade Meadows Kanakpura Road, Bangalore 2012 2020 (Residential) Brigade Golden Triangle Old Madras Road, Bangalore 2013 2020 (Residential) Source: Company, MOSL
BRGD’s other key residential projects Brigade Lakefront: The project is located near Whitefield Road, one of the most sought-after localities in Bengaluru. It boasts not only of lush greenery and good social infrastructure, but also malls, educational institutions and hospitals. This locality also enjoys excellent connectivity to MG Road, Outer Ring Road and major parts of the city. With the upcoming Metro Rail, commute is set to become easier. BRGD has 1.46msf of saleable area, of which 76% has already been sold (FY17).
Brigade Cosmopolis: The project is also located near Whitefield Road and is 9km from Brigade Lakefront. BRGD has 1.9msf of saleable area, of which 58% has already been sold (FY17). The project is in joint venture with GIC.
GIC’s INR15b joint venture agreement with Brigade Enterprises: In 2014, Brigade Group and GIC announced a memorandum of understanding to jointly invest up to INR15b in developing projects in various cities of South India. BRGD’s Cosmopolis projects are under GIC platform. BRGD holds 51% stake in the SPV and the balance is held by Reco Begonia Pte Ltd (GIC).
Brigade raised INR5b through QIP: In April 2017, BRGD raised INR5b through QIP (Qualified Institutional Placement) with an intention to utilize the said proceeds towards financing the construction and development costs of its ongoing projects.
Quality and execution – key brand ingredients BRGD has made significant efforts and investments to adopt global best practices on design and architecture. Execution also improved meaningfully over the last five years (2012-16), when it delivered 11 projects.
Given its experienced professional leadership and strong operational/financial support from internationally reputed partners, we are confident about its product quality and execution ramp-up.
24 December 2018 23 Brigade Enterprises
Exhibit 44: Strong support of reputed partners Architects, design partners Partnership with globally renowned architects viz. HOK (New York), NBBJ (Seattle), Bentel (South Africa), Ricardo Bofill (Spain) Hospitality Operators Starwood, InterContinental Hotel Group, Accor Brand awarded World Trade Centers Association, USA, awarded the license for World Trade Center for the city of Bangalore to BRGD’s commercial property in Gateway Enclave. In 2013, World Trade Centers Association (WTCA) New York awarded WTC Bangalore its Certification of Excellence. Office clients Amazon, ABB, Samsung, KPMG, TCS, Siemens, etc Retail mall clients GAP, Forever 21, Zara, Westside, Landmark, Bangalore Central, Shoppers stop, Reliance Digital, Hypercity, RmKV Silks, Smaaash, PVR – Multiplex Construction partners Shapoorji Group, JMC, Simplex, etc. Financial partners INR15b of SPV with GIC and strong banking relationship Source: Company, MOSL
Targets to develop 4-5msf under affordable housing over next five years BRGD has forayed into the affordable housing segment. It expects 4-5msf of residential development under the affordable housing segment over the next five years – BRGD plans to build 800-900sf (2BHK) of space. Expected ticket size for the projects would be INR4.5m-5m. Key benefit for BRGD would be tax exemption under the Income Tax Act, 1961. Profits from the said projects are not expected to attract MAT (Minimum Alternate Tax) provisions under the Income Tax Act, as the profits from other projects would be available as offset.
BRGD’s real estate, being Bengaluru-dependent, remains resilient BRGD has more than 70% of its residential real estate projects (by area) located in Bangalore. Moreover, about 75% of the land bank of the group is located in Bangalore. BRGD has ~75% of its land bank located in Bengaluru and 99% in South India.
Sluggish absorption leading to oversupply: Over 2009-13, annual absorption (demand) grew at a CAGR of 32% against 53% CAGR in new launches (supply), leading to oversupply. Prices over the said period grew at 8% CAGR.
New launches declining at a faster pace than absorption: Launches in the Bengaluru residential market have been declining for the last four years. Launches have dropped by 84% in 2017 from its peak in 2013 (92,208 units). Sales have slowed down by 52% over the said period. With new launches declining at a faster pace than absorption, inventory has been declining from its peak in 2015.
24 December 2018 24 Brigade Enterprises
Exhibit 45: Over the last two years, launches (supply) have been outpaced by absorption (demand) Launches (Units) Absorption (Units) Inventory (Units)
122,165 127,058 119,120 104,174 104,226 74,097 54,604 33,089 29,296 36,707 21,480 27,183 16,741 20,534 36,256 28,845 59,944 42,047 70,051 50,558 92,208 62,131 78,629 60,638 60,807 55,914 40,008 47,946 15,071 29,965
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Industry, MOSL
Exhibit 46: Price/sf grew over 2008-17 in the Bengaluru residential market Inventory (Units) Price (INR/sf) 4,587 4,780 4,257 4,382 3,927 3,616 3,179 3,156 2,865 2,968
33,089 29,296 36,707 54,604 74,097 104,174 122,165 127,058 119,120 104,226
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Industry, MOSL
24 December 2018 25 Brigade Enterprises
Expect robust PAT CAGR of 19% over FY19E-21E Leasing & hospitality segment to grow at 46%/22% CAGR over FY19-21E
BRGD’s consolidated gross debt is expected to peak at INR40b in FY20E from INR28.7b in FY18 primarily due to capex commitments towards building significant hospitality and leasing assets. However, we gain comfort from BRGD’s growing lease income – we expect lease income to be northwards of INR3b by FY20E and expect interest coverage ratio to be comfortable at ~2x over FY19-20E. Ind-AS adoption has resulted in reversal of INR23.4b of revenues which were recognized till 31st March 2018. Consequently, there is a reduction in the group retained earnings to the extent of INR 4b as on 1st April, 2018. A large part of it will get recognized in the books over FY19 and FY20. BRGD is expected to post revenue of INR29.8b in FY21E registering a CAGR of 16% over over FY19E-21E, driven by leasing and hospitality income which are expected to grow at 46% and 22% CAGR respectively over FY19E-21E. We expect BRGD to generate cumulative CFO of INR21.2b over FY19E-21E which is expected to be deployed towards developing its leasing and hospitality portfolio. We expect BRGD's PAT to grow at 19% CAGR, from INR1.4b in FY18 to INR2.4b in FY21E driven by relatively higher contribution from high margin leasing segment.
Debt to increase on account of capex commitments; adequate interest cover at 2x over FY19-21E We expect consolidated gross debt to increase to INR40b in FY20 from INR28.7b in FY18 primarily due to capex commitments. The total capex commitment over FY19 and FY20 is INR22b towards lease assets and hotels. Majority of the capex is committed towards Brigade Tech Gardens and WTC Chennai of INR16b which is under the platform with GIC (Brigade share 51%). We believe that BRGD’s growing lease income which is northwards of INR3b, provides comfort on servicing the increased debt. The interest coverage ratio is comfortable at about 2x over FY19- 21E, respectively. Moreover, we expect operating cash flows INR21.2b over FY19- 21E.
Exhibit 47: Gross debt to increase on capex commitments Net Debt (INRb) Gross Debt (INRb) Net Debt to Equity Ratio (x)
1.5 1.4 1.5 1.3 1.2 1.2 1.2
0.8 0.8 0.7 0.7 0.8 7.3 7.7 8.8 9.2 8.0 8.5 10.1 10.6 9.8 10.2 15.8 16.6 23.5 24.6 24.4 25.8 27.3 28.8 33.4 33.8 39.3 40.3 36.4 36.5
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: MOSL, Company
24 December 2018 26 Brigade Enterprises
Exhibit 48: Adequate interest coverage at ~2x over FY19E-21E
Interest expense Interest coverage ratio 2.2 2.0 1.9 1.9 1.8 1.8 1.8 1.6 1.5 1.5 1.3
0.7
0.7 1.0 0.6 0.9 1.1 1.3 2.0 2.5 2.6 2.9 3.3 3.4
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL
Residential mix was expected to decline meaningfully; IndAS reversals to limit decline to 72% We expect a jump in total revenue (including residential, leasing and hospitality) toINR27b in FY19 and INR28b in FY20 on account of - increased contribution from residential and commercial segments - on the back of Ind-AS adoption. The company adopted the Ind AS 115 for accounting period beginning after 1st April 2018 which replaces all existing revenue recognition requirements under Ind AS 18. The new standard focusses on recognizing revenues when the obligations of the Company have essentially been completed, risks have been nearly eliminated for the organization and control over the property has deemed to be passed over to the buyer. In order to comply with the new standard, the group has reversed the revenue of INR23.4b, which was recognized till 31st March 2018, under the erstwhile standards pending the completion of the performance obligation from the group to its customers. Consequently, there is a reduction in the group retained earnings to the extent of INR 4b as on 1st April, 2018. Therefore, we expect a large part of reversal to get recognized over FY19 and FY20 leading to higher share of revenue from residential and commercial segments.
Exhibit 49: Change in mix resulting in increased contribution from leasing vertical in FY21E
Residential Real Estate Lease Rentals Hospitality
9% 10% 11% 10% 12% 13% 10% 13% 15% 12% 15% 29%
81% 78% 74% 78% 72% 58%
FY16 FY17 FY18 FY19E FY20E FY21E Source: Company, MOSL
24 December 2018 27 Brigade Enterprises
Exhibit 50: Consol. revenues to grow at 16% CAGR over FY19E-21E Revenue (INRb) Growth (%)
55% 48% 42% 34% 38% 27% 15% 6% -1% 4% -7.2% -6%
3.2 4.8 6.1 8.2 9.5 13.1 20.4 20.2 19.0 27.0 28.0 29.9
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Source: Company, MOSL
Exhibit 51: Consol. EBITDA margins set to improve on the back of increased contribution of high margin leasing portfolio EBITDA (INRb) EBITDA Margin (%)
31.5% 31.5% 29.2% 28.4% 29.2% 29.0% 26.3% 27.1% 25.4% 23.2% 23.3% 24.1%
0.8 1.5 1.4 2.1 3.0 3.8 4.9 5.7 5.5 7.1 7.6 8.7
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL
Leasing (incl. CAM) & hospitality segments to grow at 45% and 22% CAGR respectively over FY18-21E Income from the leasing segment (incl. CAM) is expected to reach INR8.5b in FY21E from INR2.8b in FY18 registering 45% CAGR over FY18-FY21E. The growth is primarily on account of commencement of leasing of new commercial project - ‘Brigade Tech Garden’ with 3.3msf in FY20 (BRGD’s share - 1.7msf). In FY21, growth in leasing income will be driven by commencement of WTC Chennai with 2msf (BRGD’s share - 1msf). Income from the hospitality segment is expected to reach INR3.9b in FY21E from INR2.1b in FY18 registering 22% CAGR over FY19E-21E. Growth in the hospitality income is backed by addition of new hotels in its portfolio Of the 978 keys it has currently, ~50% (476 keys) were added in FY18 alone. It intends to add 659 keys in FY19/FY20, taking the total to 1637 keys over FY19E-20E. Overall EBITDA margins are expected to expand by ~270bps to 29% over FY19E-21E as the contribution of leasing segment, having relatively higher EBITDA margins of 71% (FY18), is expected to increase in the total revenue mix.
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Exhibit 52: Leasing revenue (incl. CAM) to grow 45% CAGR Exhibit 53: Hospitality income to grow 22% CAGR over FY18- over FY18-21E 21E
Leasing Income (incl CAM) (INRb) Growth (%) Hospitality (INRb) Growth (%)
Brigade Tech Gardens 104% 26% to commence 23% operations 17% 33% 12% 9% 9% 7%
2.8 3.2 4.2 8.6 9.3 1.8 1.9 2.4 2.8 3.5 3.8
FY18 FY19E FY20E FY21E FY22E FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL Source: Company, MOSL
Exhibit 55: Consol. EBITDA margins to expand over FY19- Exhibit 54: Residential biz to grow 7% CAGR in FY19-21E FY21E
Residential Real Estate (INRb) Growth (%) EBITDA (INRb) EBITDA Margin (%) 50% 28% 29% 29% 26% 27% 24%
-5% -4% -11% -15%
16.5 15.8 14.0 21.1 20.3 17.3 4.9 5.7 5.5 7.1 7.6 8.7
FY16 FY17 FY18 FY19E FY20E FY21E FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL Source: Company, MOSL
BRGD to generate cumulative CFO of INR21.2b over FY19-21E We expect BRGD to generate cumulative CFO of INR21.2b over FY19E-21E which is expected to be deployed towards developing its leasing and hospitality portfolio. We expect BRGD’s operational leasing portfolio (incl. CAM) to grow at 46% CAGR to INR8.5b by FY21E which is expected to increase further in FY22E on account of increase occupancy in Brigade Tech Garden and launch of WTC Chennai. Hence, post FY21E BRGD is expected to generate strong and consistent cash flows as its leasing portfolio is expected to scale up its occupancy and launch new commercial asset - WTC Chennai. We expect FY21E pre-tax leasing income of INR8.6b.
Exhibit 56: BRGD to to generate CFO of INR21.2b over FY18-21E
CFO (INRm) Growth (%)
1456% 1473%
236% 92% -21% -88% -96% 15% -5% 1% -6%
1.0 0.8 2.7 0.3 5.0 0.2 3.4 3.9 7.6 7.2 7.3 6.8
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL
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Exhibit 57: RoE to rise from 7% in FY18 to 9% in FY22
RoE (%) RoCE (%) 11.2% 9.4% 8.6% 8.8% 8.4% 8.5% 7.4% 7.2% 7.3% 10.1% 7.5% 4.7% 5.0% 8.2% 7.5% 7.6% 7.6% 7.6% 7.3% 7.6% 7.2% 6.7% 5.3% 5.1%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, MOSL
PAT to grow at 19% CAGR over FY19E-21E to INR2.4b We expect BRGD's adj. PAT to grow at 19% CAGR, from INR1.4b in FY18 to INR2.4b in FY21E. This will be driven by higher contribution from the better margin profile of leasing segment and moderate growth from its real estate portfolio.
Exhibit 58: PAT to grow at 21% CAGR over FY18-20E
PAT (INRb) Growth (%) 154%
50% 45% 30% 23% 8% 4% -4% 4% 11% -53%
0.5 1.2 0.6 0.6 0.9 1.0 1.2 1.5 1.5 2.1 2.2 2.4
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: MOSL, Company
24 December 2018 30 Brigade Enterprises
SWOT analysis
Diversified product Outsourced team of Due to RERA, Delay in delivering portfolio, which contractors, consolidation is residential projects includes real estate, engineers and expected to play out in could attract huge leasing and architects the real estate sector, penalties under RERA hospitality Concentrated by which organized and would be Distinct brand image presence in South developers will gain detrimental to the Strong execution India, specifically market share from brand image of the capability Bengaluru unorganized players company Bengaluru commercial BRGD has significant and retail market has hotel projects in the the lowest vacancy for pipeline and would be 9 years – a key area to impacted if the industry capitalize for BRGD fails to pick up
24 December 2018 31 Brigade Enterprises
Valuation and view – Initiate coverage with a Buy Strategic focus towards leasing to drive superior earnings growth
BRGD is a well-known real estate developer based in South India, with a portfolio of projects spread across real estate (standalone apartment complexes and integrated lifestyle enclaves), and has a minor presence in the leasing (commercial office spaces and retail) and hospitality businesses. Since its inception, the company has focused on expanding its real estate arm. However, it is now reinventing itself by increasing its focus on expanding its leasing and hospitality portfolio; for funding the said expansion, it raised INR5b via QIP in June 2017.
At 7% in commercial and 4% in retail, Bengaluru has the lowest vacancy rates in the last nine years, presenting an opportunity for BRGD to capitalize upon. BRGD has a strong expansion plan to scale up its commercial, retail and hotel portfolio. With strong locational/strategic advantages, BRGD’s assets are expected to gain traction quicker, reducing the stabilization period for the same.
We value cash flow from the company’s completed, ongoing and planned leasing and real estate projects at FY19E-based NAV, and land bank to the extent of cash advances paid. The total land held by the company is 523 acres, for which INR10.8b has already been paid for.
For the lease rental segment, we have used 13% WACC and a 9% cap rate for operational and ongoing assets to arrive at our FY20E-based NAV. Effectively, GAV for the leasing portfolio is INR31b (INR227/share).
The stock currently trades (a) 12.8x FY20E and 11.5x FY21E EPS, (b) 1.0x FY20E and 0.9x FY21E BV and (c) EV of 8.9x FY20E and 7.4x FY21E EBITDA. We initiate coverage with a Buy rating and an SOTP-based target price of INR282 (37% upside).
Exhibit 59: NAV calculation NAV Calculation Method Metrics INR m per share (INR) % Real Estate DCF DF-13% 10,744 79 18% Leasing DCF DF-13%, Cap -9% 30,950 227 50% Hospitality EV/EBITDA 10x FY20E 8,843 65 14% Land Bank Value Amount paid for 10,794 79 18% Gross Asset Value 61,332 451 100% Less: Net Debt 23,012 169 38% Net Asset Value 38,320 282 62% CMP 206 Up/down 37% Source: MOSL
24 December 2018 32 Brigade Enterprises
Exhibit 60: Leasing business contributes ~50% to GAV
Land Bank Value, Real Estate, 18% 18%
Hospitality, 14%
Leasing, 50%
Source: MOSL
Exhibit 61: 10-year trend in 1-year forward P/E Exhibit 62: 10-year trend in 1-year forward P/B P/E (x) Avg (x) Max (x) P/B (x) Avg (x) Max (x) 27.0 Min (x) +1SD -1SD 2.0 Min (x) +1SD -1SD 22.8 1.8 1.5 19.3 1.5 19.0 15.1 1.1 1.1 1.0 10.9 12.9 0.7 11.0 0.5 7.2 0.4 3.0 0.0 Jul-17 Jul-17 Jul-12 Jul-12 Jun-10 Jun-10 Oct-16 Oct-16 Apr-18 Apr-18 Apr-13 Apr-13 Sep-14 Feb-16 Sep-14 Feb-16 Sep-09 Feb-11 Sep-09 Feb-11 Dec-18 Dec-18 Dec-13 Dec-13 Dec-08 Dec-08 Nov-11 Nov-11 May-15 May-15 Source: Company, MOSL Source: Company, MOSL
Exhibit 63: 10-year trend in 1-year forward EV/EBITDA EV/EBITDA (x) Avg (x) Max (x) Min (x) +1SD -1SD 24.0 21.2
16.0 13.8 9.9 8.0 8.0 5.9
5.3 0.0 Jul-17 Jul-12 Jun-10 Oct-16 Apr-18 Apr-13 Sep-14 Feb-16 Sep-09 Feb-11 Dec-18 Dec-13 Dec-08 Nov-11 May-15
Source: Company, MOSL
24 December 2018 33 Brigade Enterprises
Bull & Bear case
Bull case In case of leasing portfolio, we have assumed lower vacancy rate and higher average rentals of INR85/month (FY22) and cap rate (post-tax) of 9% vis-à-vis our base case average rentals of INR79/month (FY22) and cap rate of 9%. We have assumed rentals would grow at a 5.4% annually vis-à-vis our base case of 5% annual growth over FY18-22. Hence, would increase the GAV by 21%. In case of hospitality portfolio, we have assumed average growth of 6% in room rentals annually and a discounting factor of 12.5% vis-à-vis our base case average growth of 5% in room rentals and a discounting factor of 13%. In case of residential projects, we have assumed faster absorption and higher realization growth at 5.5% annually vis-à-vis base case assumption of 5%. We have increased the paid value of land by 5% in our bull case scenario. Our target price in base case is INR282. However, in our bull case scenario, the target price would be INR361, 28% above the base case target price.
Bear case In case of leasing portfolio, we have assumed higher vacancy rate and lower average rentals of INR75/month (FY22) and cap rate (post-tax) of 10% vis-à-vis our base case average rentals of INR79/month (FY22) and cap rate of 9%. We have assumed rentals would grow at 4.5% annually vis-à-vis our base case CAGR of 5% (average) over FY18-22. Hence, would decrease the GAV by 31%. In case of hospitality portfolio, we have assumed average growth of 4.5% annually in room rentals and discounting factor of 14% vis-à-vis our base case annual growth of 5% in room rentals and discounting factor of 13%. In case of residential projects, we have assumed slower absorption and lower realization growth at 4.5% annually vis-à-vis base case assumption of 5%. We have discounted the paid value of land by 5% in our bear case scenario. Target price in base case is INR282. However, in our bear case scenario, the target price would be INR201, 29% below the base case target price.
Bull & bear case valuations Bear Case Base Case Bull Case Nav Calculation Per share Per share Per share INR m % of GAV INR m % of GAV (INR) (INR) (INR) Real Estate 13,510 99 27% 79 13,717 101 19% Leasing 20,232 149 40% 227 36,904 271 51% Hospitality 6,620 49 13% 65 10,393 76 14% Land Bank Value 10,148 75 20% 79 10,682 82 16% Gross Asset Value 50,510 371 100% 451 71,696 531 100% Less: Net Debt 23,120 170 46% 169 23,120 170 32% Net Asset Value 27,390 201 54% 282 48,576 361 68% CMP 206 206 206 Up/down -2% 37% 75% Source: MOSL
24 December 2018 34 Brigade Enterprises
Key risks
Offtake in preleasing will be critical to provide confidence in debt servicing The company’s debt levels are expected to increase going forward, given the large funding requirements arising from ongoing and planned capex commitments. A majority of this capex is towards development of two assets - (i) Brigade Tech Garden (3.3msf), (ii) WTC Chennai (2msf). Lack of substantial offtake prior to FY20, which is the deadline for availing substantial tax benefits (key driver for the project), for Brigade Tech Garden tenants could potentially risk timely debt servicing.
An oversupply situation could impact margins adversely for real estate players An oversupply situation could lead to a decline in prevailing market prices; in turn impacting realizations and margins adversely. In the absence of sales traction, developers have to rely on bank funding, which puts further pressure on margins, adversely impacting operating efficiency.
Geographically concentrated in Bangalore market: The company has diversified its revenue streams from residential segment to hospitality and leasing segments over the last few years. However, more than 70% of the residential real estate projects (by area) are located in Bangalore. Moreover, about 75% of the land bank of the group is located in Bangalore. This exposes the company to adverse movements in the regional real estate.
24 December 2018 35 Brigade Enterprises
Management overview
Mr M R Jaishankar, Chairman & Managing Director Mr Jaishankar holds a Bachelor of Science in Agriculture and a Master of Business Administration. His commitment to quality and passion for innovation has seen the Brigade Group grow from a single-building, small-scale private enterprise to a diverse multi-domain real estate company. Under his leadership, the Brigade Group has scaled new heights and has been recognized by many awards. Mr Jaishankar was the President of Karnataka Ownership Apartments Promoters’ Association during 1996-98, now CREDAI-KARNATAKA.
Ms Githa Shankar, Whole Time Director Ms Shankar holds a Bachelor of Arts degree, a Bachelor in Library Science, and a Master in Business Administration. She has over 30 years of experience in the fields of advertising, stock broking, insurance, education and real estate. She is the Managing Trustee of Brigade Foundation, which and runs the Brigade Schools in Bengaluru.
Ms. Pavitra Shankar, Executive Director She holds a Bachelor’s Degree in Economics and Mathematics from the University of Virginia, USA and a Masters in Business Administration in Real Estate and Finance from Columbia Business School, USA. She is a relative of the Promoter Group and has over a decade of rich experience and oversees Residential Sales & Marketing and IT departments at Brigade.
Ms. Nirupa Shankar, Executive Director he holds a Bachelor’s Degree in Economics from the University of Virginia, USA and has done her Masters of Management in Hospitality in 2009 from Cornell University. She forms part of the Promoter Group and is associated with the Group since 2009 with a rich and versatile experience. She oversees the Company’s Hospitality, Office & Retail Ventures, Human Resources (HR), Public Relations (PR) and Innovation functions.
Mr. Amar Mysore, Executive Director He holds a Masters in Engineering from Pennsylvania State University USA. He is a relative of the Promoter Group and has more than a decade of diverse experience in the fields of Supply Chain Management, Manufacturing, Power Sector and Real Estate. He has been instrumental in tying up green power for the Company’s commercial, retail and hotel properties. He is actively involved in the Company’s IT initiatives in adopting tech in the business processes to bring in higher efficiency.
24 December 2018 36 Brigade Enterprises
Financials and valuations
Consolidated - Income Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Total Income from Operations 9,468 13,108 20,379 20,241 18,972 27,027 28,036 29,851 Change (%) 15.1 38.5 55.5 -0.7 -6.3 42.5 3.7 6.5 EBITDA 2,985 3,830 4,902 5,744 5,545 7,108 7,598 8,657 Margin (%) 31.5 29.2 24.1 28.4 29.2 26.3 27.1 29.0 Depreciation 818 992 1,059 1,226 1,377 1,409 1,588 2,430 EBIT 2,167 2,839 3,842 4,518 4,168 5,699 6,009 6,226 Int. and Finance Charges 1,131 1,314 1,990 2,465 2,594 2,878 3,259 3,377 Other Income 199 200 340 342 483 556 667 800 PBT bef. EO Exp. 1,236 1,725 2,193 2,396 2,057 3,377 3,417 3,649 EO Items 0 0 0 0 -115 0 0 0 PBT after EO Exp. 1,236 1,725 2,193 2,396 1,942 3,377 3,417 3,649 Total Tax 346 575 802 732 628 1,114 1,059 1,022 Tax Rate (%) 28.0 33.4 36.6 30.5 32.4 33.0 31.0 28.0 Minority Interest -30 197 151 141 -63 150 165 200 Reported PAT 920 952 1,239 1,523 1,377 2,112 2,193 2,427 Adjusted PAT 920 952 1,239 1,523 1,455 2,112 2,193 2,427 Change (%) 50.2 3.5 30.1 22.9 -4.5 45.2 3.8 10.7 Margin (%) 9.7 7.3 6.1 7.5 7.7 7.8 7.8 8.1
Consolidated - Balance Sheet (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Equity Share Capital 1,123 1,127 1,132 1,137 1,361 1,361 1,361 1,361 Total Reserves 11,680 12,440 14,246 15,813 21,510 23,622 25,815 28,242 Net Worth 12,802 13,567 15,378 16,949 22,870 24,983 27,176 29,603 Minority Interest 0 258 1,238 2,274 2,231 2,381 2,546 2,746 Total Loans 10,215 16,632 24,587 25,763 28,781 33,781 40,281 36,481 Deferred Tax Liabilities 342 331 619 619 381 381 381 382 Capital Employed 23,359 30,789 41,822 45,606 54,262 61,524 70,382 69,210
Gross Block 14,734 15,242 3,681 5,292 10,345 10,845 11,845 32,345 Less: Accum. Deprn. 2,504 3,524 323 798 2,175 3,584 5,172 7,603 Net Fixed Assets 12,230 11,718 3,358 4,494 8,171 7,261 6,673 24,743 Goodwill on Consolidation 37 1,902 43 43 43 43 43 43 Capital WIP 2,460 4,857 14,108 15,637 21,291 31,715 41,257 21,880 Total Investments 822 345 9,940 10,310 12,193 12,193 12,193 12,193
Curr. Assets, Loans&Adv. 17,865 24,160 32,516 33,016 36,521 37,791 35,118 36,305 Inventory 11,231 15,444 23,067 22,639 21,795 19,723 16,382 17,116 Account Receivables 372 150 429 374 1,770 2,814 2,304 2,453 Cash and Bank Balance 383 829 1,089 1,363 1,466 390 1,012 318 Loans and Advances 5,880 7,738 7,931 8,640 11,491 14,865 15,420 16,418 Curr. Liability & Prov. 10,054 12,192 18,144 17,894 23,957 27,479 24,902 25,954 Account Payables 2,038 2,988 4,243 5,161 5,265 7,640 8,399 8,710 Other Current Liabilities 7,721 8,869 13,704 12,585 18,611 19,723 16,381 17,116 Provisions 296 335 198 148 81 115 120 128 Net Current Assets 7,811 11,968 14,372 15,123 12,564 10,312 10,217 10,351 Misc Expenditure 0 0 0 0 0 0 0 0 Appl. of Funds 23,359 30,789 41,822 45,606 54,262 61,524 70,382 69,210 E: MOSL Estimates
24 December 2018 37 Brigade Enterprises
Financials and valuations
Ratios Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Basic (INR) EPS 6.8 7.0 9.1 11.2 10.7 15.5 16.1 17.8 Cash EPS 12.8 14.3 16.9 20.2 20.8 25.9 27.8 35.7 BV/Share 94.1 99.7 113.0 124.6 168.1 183.6 199.7 217.6 DPS 2.0 2.0 2.0 2.5 0.0 2.5 2.8 3.5 Payout (%) 28.5 28.4 22.0 22.5 0.0 19.8 19.5 20.0 Valuation (x) P/E 29.1 22.4 18.2 19.1 13.3 12.8 11.5 Cash P/E 14.3 12.1 10.1 9.8 7.9 7.3 5.7 P/BV 2.0 1.8 1.6 1.2 1.1 1.0 0.9 EV/Sales 3.0 2.3 2.4 2.9 2.3 2.4 2.1 EV/EBITDA 10.2 9.5 8.3 9.9 8.6 8.8 7.4 Dividend Yield (%) 1.0 1.0 1.0 1.2 0.0 0.0 0.0 0.0 FCF per share 29.6 -17.0 -50.1 2.6 -23.0 -27.6 -24.1 41.8 Return Ratios (%) RoE 7.4 7.2 8.6 9.4 7.3 8.8 8.4 8.5 RoCE 7.5 7.6 7.6 8.2 6.7 7.6 7.3 7.6 RoIC 8.2 8.5 11.8 17.9 15.0 20.9 25.0 17.7 Working Capital Ratios Fixed Asset Turnover (x) 0.6 0.9 5.5 3.8 1.8 2.5 2.4 0.9 Asset Turnover (x) 0.4 0.4 0.5 0.4 0.3 0.4 0.4 0.4 Inventory (Days) 433 430 413 408 419 266 213 209 Debtor (Days) 14 4 8 7 34 38 30 30 Creditor (Days) 79 83 76 93 101 103 109 107 Leverage Ratio (x) Current Ratio 1.8 2.0 1.8 1.8 1.5 1.4 1.4 1.4 Interest Cover Ratio 1.9 2.2 1.9 1.8 1.6 2.0 1.8 1.8 Net Debt/Equity 0.8 1.2 1.5 1.4 1.2 1.3 1.4 1.2
Consolidated - Cash Flow Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E OP/(Loss) before Tax 1,236 1,725 2,193 2,408 2,057 3,377 3,417 3,649 Depreciation 818 992 1,059 1,226 1,377 1,409 1,588 2,430 Interest & Finance Charges 1,112 1,237 1,787 2,198 2,111 2,322 2,592 2,577 Direct Taxes Paid -253 -513 0 0 -628 -1,114 -1,059 -1,022 (Inc)/Dec in WC 2,094 -3,222 -1,604 -1,890 2,661 1,176 718 -829 CF from Operations 5,007 218 3,436 3,941 7,577 7,170 7,256 6,806 Others -103 41 -49 37 0 0 0 0 CF from Operating incl EO 4,903 260 3,387 3,978 7,577 7,170 7,256 6,806 (Inc)/Dec in FA -1,541 -2,191 -9,084 -3,686 -10,708 -10,924 -10,542 -1,123 Free Cash Flow 3,362 -1,932 -5,697 292 -3,131 -3,754 -3,286 5,683 (Pur)/Sale of Investments -738 492 -409 259 -1,883 0 0 0 Others -96 -1,848 59 808 210 556 667 800 CF from Investments -2,375 -3,547 -9,434 -2,619 -12,381 -10,368 -9,875 -323 Issue of Shares 0 25 22 26 5,004 0 0 0 Inc/(Dec) in Debt -1,226 5,279 9,068 1,240 3,017 5,000 6,500 -3,800 Interest Paid -1,193 -1,308 -2,239 -2,350 -2,594 -2,878 -3,259 -3,377 Dividend Paid -197 -262 -543 -1 0 0 0 0 Others 0 0 0 0 -521 0 0 0 CF from Fin. Activity -2,616 3,734 6,307 -1,085 4,907 2,122 3,241 -7,177 Inc/Dec of Cash -87 446 260 274 103 -1,077 622 -694 Opening Balance 470 383 829 1,089 1,363 1,466 390 1,012 Closing Balance 383 829 1,089 1,363 1,466 390 1,012 318
24 December 2018 38 REPORT GALLERY RECENT INITIATING COVERAGE REPORTS
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Brigade Enterprises
N O T E S
24 December 2018 40 Brigade Enterprises
Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10% NEUTRAL < - 10 % to 15% UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation *In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend. Disclosures The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). Motilal Oswal Securities Ltd. (MOSL)* is a SEBI Registered Research Analyst having registration no. INH000000412. 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24 December 2018 41 Brigade Enterprises
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Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: [email protected], Contact No.:022-38281085. Registration details: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products. * MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.
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