Motilal Oswal Financial Services

Brigade Enterprises

BSE SENSEX

39,602

S&P CNX

11,832

20 June 2019

Update

| Sector:

Real Estate

CMP: INR248

TP: INR316 (+27%)

Buy

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New launches to drive robust growth

Expect 3.6msf of pre-sales and 3msf of pre-leasing in FY20

We recently interacted with BRGD’s management to understand the progress of its two

key commercial assets and its growth strategy for FY20.



As outlined in our Initiating Coverage report dated 24 Dec 2018, BRGD appears all

set for a

Tactical Shift

in its portfolio with a clear focus on scaling up the high-

potential leasing business. In FY19, leasing operations contributed 11% to revenues,

which we expect should increase to 26% by FY21.



BRGD is on track to complete the BTG Bengaluru and WTC Chennai projects by

Dec’19. It has already pre-leased 0.6msf between BTG and WTC in FY19. We expect it

to achieve 3msf of pre-leasing in FY20 comprising mainly WTC Chennai and BTG

Bengaluru.



Thus, we expect BRGD’s leasing revenue to grow at 28% CAGR to INR6.7b in FY23

from INR2.4b in FY19 and in the residential segment, we expect BRGD to achieve

booking value of INR19b (up 16%) in FY20 and INR23b (up 21%) in FY21.



We expect BRGD to achieve pre-sales of 3.6msf (v/s management’s estimate of 4msf)

in FY20 and 4.2msf in FY21, aided by its ongoing but unsold inventory of 7.4msf and

new launches of 4.4msf (BRGD’s share). Thus, BRGD will be equipped with 11.8msf of

residential projects to achieve its targeted sales. In 1QFY20, the company launched

1msf Brigade El Dorado (total potential of 5.5msf) located in Huvinayakanahalli,

North Bengaluru.



Debt will continue to rise, but towards building significant leasing assets. Of the total

commercial debt of INR21.3b, INR12.5b is secured against lease rentals, which

provides comfort.



We have valued BRGD on SOTP basis. Its leasing portfolio contributes 50% of our GAV

estimate. We are particularly enthused with the ongoing traction in pre-leasing and

residential sales. We maintain our PT at INR316. Maintain Buy.

Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

BRGD IN

136

33.3 / 0.5

268 / 157

-2/8/-5

53.2

Financials Snapshot (INR b)

Y/E March

FY19 FY20E FY21E

Net Sales

29.7

28.5

25.4

EBITDA

7.9

8.3

7.9

2.4

2.2

1.9

EPS (INR)

17.5

15.8

13.7

EPS Gr (%)

62.0

-9.5 -13.7

BV/Sh. (INR)

159.4 175.3 188.9

P/E (x)

13.0

14.4

16.7

P/BV (x)

1.4

1.3

1.2

RoE (%)

10.7

9.5

7.5

RoCE (%)

8.7

8.0

7.2

Shareholding pattern (%)

As On

Mar-19 Dec-18 Mar-18

Promoter

46.8

46.9

46.7

DII

15.9

15.8

15.1

FII

12.5

12.6

13.0

Others

24.8

25.2

FII Includes depository receipts

Stock Performance (1-year)

Brigade Enterpr.

Sensex - Rebased

310

260

210

160

110

Expect robust growth in 1QFY20, need aggressive new launches to achieve

4msf target

BRGD is likely to deliver robust pre-sales growth in 1QFY20 backed by its new

launch El-Dorado, continued traction in Utopia and thrust on liquidation of

completed inventory. The company is offering high value proposition in El-Dorado

by offering compact 3BHKs for INR45lac under the affordable housing scheme; the

project also qualifies for 1% GST. We believe this will drive robust growth (our

estimate of >100%) in 1QFY20 on a base of 0.43msf. It further plans to launch

Brigade Utopia Phase II of ~1msf, Brigade Citadel (Hyderabad) of 0.8msf, Brigade

Xanadu Phase II of 0.8msf, and WTC Residency (Chennai) of 0.6msf. Another 3.9msf

will be launched through multiple small and large projects in Bengaluru in FY20.

The company had an opening inventory of 7.4msf as at Mar’19, and it announced

new launches of 4.4msf (BRGD’s share), taking the total inventory to 11.8msf for

FY20. Management’s target of achieving 4msf (34% of total) pre-sales seems a bit

stretched, and we believe that BRGD will have to announce more new launches to

achieve the target. New launches should drive pre-sales growth; we expect BRGD

to achieve pre-sales of 3.6msf/4.2msf in FY20/FY21 and booking value of INR19b/

INR23b in FY20/FY21. BRGD achieved pre-sales of 3msf and booking value of

INR16.4b in FY19.

Chintan Modi- Research analyst

(Chintan.Modi@MotilalOswal.com); +91 22 6129 1554

Lopa Thakkar- Research analyst

(Lopa.Thakkar@motilaloswal.com); +91 22 6129 1548

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

Debt to continue rising but towards Capex

BRGD’s s consolidated gross debt is expected to rise from INR33.7b in FY19 to

~INR36.7b in FY20, primarily due to capex commitments towards significant leasing

assets. Between Brigade Tech Garden (BTG) in Bengaluru and WTC in Chennai —two

projects funded by debt – a further capex of INR11b (BRGD share INR5.6b) is needed

to complete the projects during the year. However, improving cash flow in the

residential business is likely to limit debt increase (completed but unsold inventory

of INR5.8b). Additionally, it is important to note that BRGD’s residential debt has

reduced from INR7.9b in FY18 to INR6.8b FY19. Of the total commercial debt of

INR21.3b, INR12.5b is secured against lease rental, which provides comfort.

Plans to achieve pre-leasing target of 3msf in FY20

BRGD plans to achieve 3msf of pre-leasing in FY20 majorly comprising its two key

projects — WTC Chennai and BTG Bengaluru. Construction of BTG is on track and is

expected to be completed by Dec’19. The company has already pre-leased 0.36msf

in BTG and is in advanced stages of discussion to lease further 0.55msf. BTG is

currently pre-leasing at INR55psf while WTC Chennai is pre-leasing at INR75-80psf.

We expect strong traction in both BTG and WTC Chennai on the tax holiday benefits

for tenants if booking is completed before the ‘2020 Sunset Clause’ deadline. We

expect BRGD to execute 3msf of new pre-leases by end-FY20; also its leasing income

should grow at 28% CAGR to INR6.7b by FY23E from INR2.4b in FY19.

Valuation and view

BRGD’s commercial and residential growth prospects appear promising. We expect

annuity income (excl. CAM) from office and retail to increase from INR2.4b in FY19

to INR6.7b in FY23 (BRGD’s share), and residential segment growth to be driven by

launches in the affordable segment. We expect BRDG to deliver pre-sales of

3.6msf/4.2msf during FY20/FY21, broadly maintaining leasing and hotel income

estimates and expect it to generate CFO of INR18.5b over FY20-21. We are

particularly enthused with the ongoing traction in pre-leasing and residential sales.

We maintain our PT at INR316. Maintain

Buy.

Exhibit 1: SOTP based valuation

NAV Calculation

Real Estate

Leasing

Hospitality

Land Bank Value

Gross Asset Value

Less: Net Debt

Net Asset Value

CMP

Up/down (%)

Method

Metrics

INR m

17,431

33,259

8,643

7,636

66,969

24,005

42,964

DCF

DF-13%, Cap -9%

EV/EBITDA

10x FY20

Amount paid for

per share

(INR)

128

244

492

176

316

248

11%

100

20 June 2019

Brigade Enterprises

Rolled out Brigade EL Dorado – a 5.5msf residential project

Brigade El Dorado is a 50-acre affordable housing integrated residential enclave

(BRGD’s 8

integrated conclave) located 15 minutes from Bengaluru Airport in

Huvinayakanahalli, North Bengaluru. It has saleable potential of 5.5msf (to be

developed in phases) with 2-3BHK configurations ranging from 795- 1,068sf with

carpet area of up to 60sqm and costs less than INR4.5m per unit (Exhibit

1).



Location advantage:

The project is expected to do well as it is located in an

aerospace park — a 3,000-acre development planned and promoted by the

Karnataka Industrial Area Development Board (KIADB), as the hub of aerospace

industry in India.



Connectivity:

The location has good connectivity due to the Elevated

Expressway to Bengaluru International Airport Limited (BIAL), metro routes,

flyovers connecting ORR (Outer Ring Road) and NH-7, Peripheral Ring Road, etc.,

making it an attractive end-use property and investment destination (Exhibit

3).

These units will attract 1% GST. Also, those eligible for PMAY scheme can avail

additional subsidy up to INR0.2m on these units, making it an attractive

proposition.



Tenant profile in the location:

Marquee names such as Boeing, Airbus, Rolls

Royce, etc., are planning to set up facilities in this park. Other MNCs like Shell,

SAP Labs are also setting up campuses in this area. BRGD owns the land for this

project; we estimate margins to be in the range of ~28%.

Exhibit 2: Brigade EL Dorado project - key features

Particulars

Project name

Location

Land area and developable area

Project launch

Possession

Price

Configurations

GST applicable

Amenities

Particulars

Brigade EL Dorado

Aerospace Park, Bagalur, North Bengaluru

50 acres (5.5 msf; of which 1msf has been launched)

2019

2023

<INR40m

2 BHK (SBA - 795 sf) and 3 BHK (SBA - 1,043sf /1,068sf)

Club house, swimming pool, jogging track, cafes, aqua deck,

children’s play area, etc.

Yelahanka – 12 kms (20 mins travel time)

Airport – 13 kms (20 mins travel time)

Thanisandra – 15 kms (25 mins travel time)

Budigere Cross – 16 kms (30 mins travel time)

Manyata Tech Park - 17 kms (30 mins travel time)

Hebbal – 21 kms (35 mins travel time)

KR Puram – 24 kms (45 mins travel time)

Source: MOFSL, Company

Connectivity

20 June 2019

Brigade Enterprises

Exhibit 3: Located in the Golden triangle — Hebbal, the

International Airport and Budigere Cross

Exhibit 4: Located close to IT hubs and new infrastructure

Source: MOFSL

Exhibit 5: Brigade EL Dorado – key features

Source: MOFSL

BTG and WTC — key commercial assets to drive pre-leasing

BTG in Bengaluru and WTC in Chennai are two projects expected to see good

traction due to its special economic zone (SEZ) status.

With a leasable area of 3.3msf (BRGD’s share: 1.68msf), BTG is one of BRGD’s key

projects as a JV with the Government of Singapore Investment Corp Pte Ltd (GIC).

WTC is a well-known brand globally that promises tenants pre-defined set of

infrastructure and services. Due to BRGD’s association with the WTC brand, its

commercial projects are expected to gain good traction. Also, we expect both

projects to reach optimum occupancy in the first year itself due to the ‘Sunset

Clause’, particularly as companies operating here will avail tax exemption for 15

years.

The company has pre-leased 0.6msf between BTG, Bengaluru and WTC, Chennai.

We expect BRGD to deliver 3msf overall pre-sales in FY20 – comprising mainly WTC,

Chennai and BTG, Bengaluru.

20 June 2019

Brigade Enterprises

Commercial vacancy at the lowest in Bengaluru over last couple of years

Exhibit 6: Bengaluru commercial market — vacancy rate lowest over the last couple of years

25%

Supply (msf)

23%

19%

15%

14%

13%

12%

Absorption (msf)

Vacancy rate (%)

105 85

111 94

118 100

133 114

143 125

155 136

165 145

180 164

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: MOFSL, Industry Sources

Exhibit 7: Bengaluru – rentals grew at 5% CAGR over the last five years

11%

Rentals (INR/sqft/month)

Growth rate (%)

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Source: MOFSL, Industry Sources

Exhibit 8: BTG construction progress – Images as of Apr’19

Exhibit 9: BTG construction progress – Images as of Apr’19

Source: MOFSL, Company

20 June 2019

Brigade Enterprises

Exhibit 10: BTG construction progress – Images as of Apr’19

Exhibit 11: BTG construction progress – Images as of Apr’19

Source: MOFSL, Company

20 June 2019

Brigade Enterprises

Story in charts

Exhibit 12: Revenue to decline* in FY20 and FY21

Revenue (INRb)

55%

57%

24%

-1%

-6%

-4%

-11%

4.9

FY16

5.7

FY17

5.5

FY18

7.9

FY19

8.3

FY20E

7.9

FY21E

28%

29%

27%

29%

Growth (%)

Exhibit 13: Annuity assets to drive EBITDA margin expansion

EBITDA (INR b)

EBITDA margin (%)

31%

20.4

FY16

20.2

FY17

19.0

FY18

29.7

FY19

28.5

FY20E

25.4

FY21E

Source: Company, MOFSL

Exhibit 14: PAT to decline on higher depreciation and interest

PAT (INRb)

62%

30%

24%

-4%

1.2

FY16

1.5

FY17

1.5

FY18

2.4

FY19

-9%

2.2

FY20E

-14%

1.9

FY21E

Growth (%)

Exhibit 15: BRGD to generate consistent CFO

Cash Flow from Operations (INRb)

3.4

FY16

3.9

FY17

7.6

FY18

6.2

FY19

10.8

FY20E

7.8

FY21E

Source: Company, MOFSL

Exhibit 16: Declining net debt to equity ratio

Net Debt (INRb)

1.5

1.4

Net Debt to Equity Ratio (x)

1.5

Exhibit 17: Revenue contribution to reduce from real estate

Real Estate

Leasing

Hospitality

Rising contribution

from leasing segment

12%

14%

74%

15%

26%

59%

FY21E

1.2

1.4

10%

81%

10%

13%

78%

11%

15%

74%

10%

11%

79%

23.5

FY16

24.4

FY17

27.3

FY18

31.6

FY19

35.6

FY20E

35.0

FY21E

FY16

FY17

FY18

FY19

FY20E

Source: Company, MOFSL

Exhibit 18: Debt is largely driven by ongoing commercial assets under development

Segment

Real Estate

Hospitality

Lease Portfolio

Debt (INRb)

6.8

5.2

21.3

33.4

Equity (INRb)

13.3

3.5

11.4

28.3

D/E ratio

0.5

1.5

1.9

1.2

Debt as % of

total debt

21%

16%

64%

*Revenue growth shows a decline on account of the change in revenue recognition policy to project completion

method for residential development as per Ind-As 115.

Source: MOFSL, Company

20 June 2019

Brigade Enterprises

Financials and Valuation

Income Statement

Y/E March

Total Income from Operations

Change (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Total Tax

Tax Rate (%)

Minority Interest

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

(INR m)

FY14

9,468

15.1

2,985

31.5

818

2,167

1,131

199

1,236

346

28.0

-30

920

50.2

9.7

FY15

13,108

38.5

3,830

29.2

992

2,839

1,314

200

1,725

575

33.4

197

952

3.5

7.3

FY16

20,379

55.5

4,902

24.1

1,059

3,842

1,990

340

2,193

802

36.6

151

1,239

30.1

6.1

FY17

20,241

-0.7

5,744

28.4

1,226

4,518

2,465

342

2,396

732

30.5

133

1,531

23.5

7.6

FY18

18,972

-6.3

5,545

29.2

1,377

4,168

2,594

483

2,057

-115

1,942

628

32.4

-79

1,392

1,470

-4.0

7.7

FY19

29,728

56.7

7,897

26.6

1,400

6,497

2,785

545

4,257

1,455

34.2

420

2,381

62.0

8.0

FY20E

28,543

-4.0

8,277

29.0

2,215

6,062

3,104

654

3,612

1,120

31.0

336

2,156

-9.5

7.6

FY21E

25,352

-11.2

7,859

31.0

2,471

5,388

3,214

785

2,958

828

28.0

269

1,861

-13.7

7.3

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liabilities

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Goodwill on Consolidation

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Misc Expenditure

Appl. of Funds

E: MOFSL Estimates

FY14

1,123

11,680

12,802

10,215

342

23,359

14,734

2,504

12,230

2,460

822

17,865

11,231

372

383

5,880

10,054

2,038

7,721

296

7,811

23,359

FY15

1,127

12,440

13,567

258

16,632

331

30,789

15,242

3,524

11,718

1,902

4,857

345

24,160

15,444

150

829

7,738

12,192

2,988

8,869

335

11,968

30,789

FY16

1,132

14,246

15,378

1,238

24,587

619

41,822

3,681

323

3,358

14,108

9,940

32,516

23,067

429

1,089

7,931

18,144

4,243

13,704

198

14,372

41,822

FY17

1,137

15,813

16,949

2,274

25,763

619

45,606

5,292

798

4,494

15,637

10,310

33,016

22,639

374

1,363

8,640

17,894

5,161

12,585

148

15,123

45,606

FY18

1,361

21,510

22,870

2,231

28,781

381

54,262

10,345

2,175

8,171

21,291

12,193

36,521

21,795

1,770

1,466

11,491

23,957

5,265

18,611

12,564

54,262

FY19

1,361

20,332

21,693

1,884

33,778

57,356

12,823

3,575

9,248

20,097

14,452

64,157

48,161

4,208

2,222

9,566

50,642

6,081

44,464

13,515

57,356

FY20E

1,361

22,488

23,849

2,220

36,778

62,848

18,823

5,790

13,033

26,399

14,452

65,068

49,947

3,910

1,221

9,990

56,147

6,107

49,947

8,921

62,848

(INR m)

FY21E

1,361

24,349

25,710

2,489

36,278

64,477

39,323

8,261

31,062

10,717

14,452

62,549

48,512

3,612

1,298

9,127

54,346

5,751

48,512

8,203

64,477

20 June 2019

Brigade Enterprises

Financials and Valuation

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Leverage Ratio (x)

Current Ratio

Interest Cover Ratio

Net Debt/Equity

FY14

6.8

12.8

94.1

2.0

28.5

FY15

7.0

14.3

99.7

2.0

28.4

32.6

16.0

2.3

3.2

10.9

0.9

-17.0

7.2

7.6

8.5

0.9

0.4

2.0

2.2

1.2

FY16

9.1

16.9

113.0

2.0

22.0

25.0

13.5

2.0

2.4

10.1

0.9

-50.1

8.6

7.6

11.8

5.5

0.5

1.8

1.9

1.5

FY17

11.3

20.3

124.6

2.5

22.4

20.3

11.3

1.8

2.5

8.8

1.1

2.6

9.5

8.2

17.9

3.8

0.4

1.8

1.4

FY18

10.8

20.9

168.1

0.0

21.1

10.9

1.4

3.1

10.5

0.0

-23.0

7.4

6.7

15.0

1.8

0.3

1.5

1.6

1.2

FY19

17.5

27.8

159.4

0.0

13.0

8.2

1.4

2.1

7.9

0.0

36.5

10.7

8.7

21.4

2.3

0.5

1.3

2.3

1.5

FY20E

15.8

32.1

175.3

0.0

14.4

7.1

1.3

2.3

8.0

0.0

-11.4

9.5

8.0

20.2

1.5

0.5

1.2

2.0

1.5

FY21E

13.7

31.8

188.9

0.0

16.7

7.2

1.2

2.6

8.4

0.0

22.1

7.5

7.2

13.2

0.6

0.4

1.2

1.7

1.4

0.9

29.6

7.4

7.5

8.2

0.6

0.4

1.8

1.9

0.8

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

FY14

1,236

818

1,112

-253

2,094

5,007

-103

4,903

-1,541

3,362

-738

-96

-2,375

-1,226

-1,193

-197

-2,616

-87

470

383

FY15

1,725

992

1,237

-513

-3,222

218

260

-2,191

-1,932

492

-1,848

-3,547

5,279

-1,308

-262

3,734

446

383

829

FY16

2,193

1,059

1,787

-1,604

3,436

-49

3,387

-9,084

-5,697

-409

-9,434

9,068

-2,239

-543

6,307

260

829

1,089

FY17

2,408

1,226

2,198

-1,890

3,941

3,978

-3,686

292

259

808

-2,619

1,240

-2,350

-1

-1,085

274

1,089

1,363

FY18

2,057

1,377

2,111

-628

2,661

7,577

-10,708

-3,131

-1,883

209

-12,382

5,004

3,017

-2,594

-521

4,907

102

1,363

1,465

FY19

4,257

1,400

2,240

-1,455

-194

6,247

-1,284

4,963

-2,259

-4,160

-7,703

4,998

-2,785

2,213

757

1,465

2,222

FY20E

3,612

2,215

2,451

-1,120

3,593

10,751

-12,302

-1,551

654

-11,648

3,000

-3,104

-104

-1,001

2,222

1,221

FY21E

2,958

2,471

2,430

-828

795

7,826

-4,818

3,008

785

-4,034

-500

-3,214

-3,714

1,221

1,298

20 June 2019

Brigade Enterprises

NOTES

20 June 2019

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 is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

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Specific Disclosures

1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

20 June 2019

Brigade Enterprises

9 MOSL has not received any compensation or other benefits from third party in connection with the research report

10 MOSL has not engaged in market making activity for the subject company

********************************************************************************************************************************

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even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

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20 June 2019