BRIGADE Office & Residential Steady, Hospitality Worst Hit

According to 4QFY20 Results reports of Brigade Enterprises by Motilal Oswal Institutional Equities. BRGD has shown continued strength in delivering strong pre-sales volumes of ~1msf in the Residential segment, even in these testing times, as well as in its Leasing portfolio. This makes the company one of the favored plays in the Real Estate space. Leasing remains the cornerstone of the business in the near to long term, while Residential is likely to bounce back in 2HFY21E. Accounting for near-term challenges in Residential and Hospitality, we reduce our TP to INR195. However, reiterate Buy on account of favorable risk-reward. Residential shows strength amid COVID-19 outbreak: 4QFY20 pre-sales volume/value was up 10%/25% YoY to 1.05msf/INR6.5b. Average price realization (INR psf) was up 14% YoY to INR6,176. For FY20, pre-sales volume/value increased 44%/45% YoY to 4.26msf/INR23.8b. Leasing revenue was up 22% YoY to INR1.05b, driven by incremental leasing of 0.21msf in 4QFY20. In FY20, BRGD leased 2.45msf of incremental office and retail space, with an est. rental yield of INR2.4b. Hospitality was among the worst-hit segments due to COVID-19 impacting both business and leisure travel. In 4QFY20, revenue from the Hospitality segment was down 9% YoY, with EBIT loss of INR4m. Management has guided for near-term challenges, with pickup expected in 2HFY21. For FY20, Hospitality revenue grew 8% YoY to INR3.3b. In 4QFY20, revenue / EBITDA / adj. PAT declined 16%/37%/70%, with EBITDA margin contraction at 710bp. For FY20, revenue / EBITDA / adj. PAT declined 12%/16%/40% YoY, with EBITDA margin contraction at 140bp. A) ~95% of the World Trade Centre (WTC), Chennai is leased out; expect rental income to flow from 4QFY21. ~50% of Brigade Tech Gardens (BTG), Bangalore is pre-leased, and rentals have commenced from 4QFY20. B) BRGD has opted for a loan moratorium (from Apr'20 to Aug'20) on debt pertaining to the Retail and Hospitality segments. Debt under moratorium amounts to ~INR12b. Given the near-term challenges for the Residential and Hospitality segments, we lower our estimates by 15%/20% for pre-sales value/revenue for Residential/Hospitality. However, we expect momentum to continue in the medium term, driven by a robust line-up of launches across business segments, strong execution capabilities, and the right product mix. Maintain Buy, with TP of INR195.