Markets
Brigade Enterprises gears up for FY25 with thrust on commercial segment
Summary
- Investors need to watch out for geographical concentration risk as the majority of Brigade’s projects are in the Bengaluru market
Realty firm Brigade Enterprises Ltd concluded FY24 on a solid note with strong performance across business verticals. Pre-sales or bookings in the residential segment surged 46% year-on-year to ₹6,012.5 crore. New launches and sustaining sales momentum in ongoing projects translated into highest ever collections of ₹5,915.1 crore in FY24.
The outlook for FY25 is also upbeat. Project launches of 12.6 million square feet (msf) are the line-up in the residential space spread across key markets of Bengaluru, Hyderabad and Chennai. These projects have a gross development value of ₹13,000 crore. The company expects to spend more on business development over the next two years. “This will provide growth visibility in the residential segment and lead to further re-rating," said Motilal Oswal Financial Services.
On the commercial side, net office space absorption in FY24 was more than 1msf with 97.5% occupancy across the leasing portfolio. The management expects office demand to be robust in FY25, driven by medium and large-sized tenants, dominated by automobile, technology, manufacturing, and engineering sectors. It anticipates rental income to grow by 15-16% year-on-year and reach Rs700 crore by the end of FY25 from around Rs600 crore in FY24.
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Despite the sluggish performance of multiplexes, its mall business saw consumption surpassing pre-covid levels with footfall rising 10% in FY24.
In the hospitality segment, the key metric of average room rate (ARR) grew 8% in FY24 at around ₹6,500, surpassing the pre-covid level of ₹5,400.
The average occupancy rate for the segment rose to 72% in FY24, much higher than the pre-covid level of 62%. The management expects ARR to grow 10% in FY25 aided by improvement in occupancies.
Future plans
Going ahead, the company eyes 3msf of new office projects in Bengaluru, Hyderabad, and Chennai, and 0.5msf in hotels. This will entail a capital expenditure of around ₹2,000 crore over FY25-28.
With expansions planned across segments, timely completion of projects is crucial for earnings outlook.
The stock has rallied by a massive 117.12% in the last one year, beating the Nifty Realty index which has risen 99.59%.
Investors have approved the impressive pre-sales trajectory, robust cash flows and healthy balance sheet. Any potential delays ahead could mean pressure on cash flows and ability to service debt. To be sure, Brigade’s net debt has eased to Rs1,908 crore, but cost of debt is elevated at 8.8%.
Investors also need to watch out for geographical concentration risk as the majority of Brigade’s projects are in the Bengaluru market. Any slowdown here could derail pre-sales growth and thereby hamper the stocks' momentum.
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