Prestige Estates: Good buy for investors looking at realty stocks

Bangalore -based Prestige Estates, one of the few realty stocks to have gained in recent months, has performed better than its peers in the industry, especially in the fourth quarter of the last fiscal. The company is a leading developer in South India with a strong presence in Bangalore, Hyderabad, Chennai, Mysore and Mangalore.

Thanks to the stable real estate growth in Bangalore and other southern markets and the company's balanced focus on residential as well as commercial realty developments, Prestige Estates managed to beat its growth guidance for fiscal 2012. The company managed to launch 9.5 million square feet (msf) of area against the guided launch of 6-7 msf. It managed to lease 3.12 msf of area, higher than the expected leasing of 2-3 msf.

During FY12, despite macro-economic challenges, the company has been able to generate strong operational cash flows and post an improved operating margin of 30-35%. Thanks to its practice of following a conservative revenue recognition policy, the company has unrecognised revenues of Rs 3,280 crore - representing the new sales that the company made in previous years. This revenue will be recognised quarter after quarter starting from the next.

The company is looking at booking one-third of this unrecognised turnover - of close to Rs 1,500 crore - in FY13. For FY13, the company expects to launch 6-8 msf of projects in the residential category. It intends to lease close to 2.5 msf, earning a rental income of close to Rs 225 crore, and post an operating margin of around 30%. It is likely to spend Rs 200-300 crore for acquiring land.

Over the past six months, it has gained 48% - against a 3% drop in the 12-member BSE Realty Index.For investors looking at taking an exposure to Indian realty stocks, this may be a good buy.