Bangalore property market play: Prestige Estates & Brigade can gain 25-38% in a year
It is also the largest mall in India, with a total Class A letting office stock of 186msf and an annual uptake of around 12msf. The Commercial segment is dominated by IT/ITeS players, which account for approximately 50% of total absorption.
According to the Naukri JobSpeak Index, Bengaluru recorded the highest growth (+3.2x) in hiring activity among the top seven cities until the peak of the first COVID wave in July 2020-September 2021, driven by strong hiring in IT and BFSI (GCC) .
IT workers also received solid pay increases. On an overall basis, while it shows a 7-12% year-on-year increase in cost per employee, due to a fresher, fresher mix, mid-level employees saw their salaries increase by 30 to 40%.
Bengaluru has the highest share (34%) of Global Captive Centers (GCCs), which are expected to grow from 1,450 at CY20 to 1,700 by CY25.
The recovery of residential demand in Bangalore took longer than the four major cities, but fully recovered to pre-COVID levels at 4QCY21.
We expect strong hiring trends in IT companies and CCGs, coupled with strong salary increases for IT employees, to kick off the next stage of residential growth in Bangalore.
The residential real estate market in Bengaluru is now on the cusp of a high demand cycle, thanks to: a) strong hiring in the IT sector and a growing number of global captives, b) salary increases for IT employees, and c) best-in-class affordability.
Low inventory overhang (15 months) and high affordability in Bangalore, with a unit price to income per capita ratio of 16x compared to 24x for the top five cities, allows for gradual and steady price increases in a high demand environment .
Relatively high affordability, low excess inventory and strong demand will provide developers with comfort to undertake gradual but steady price increases, leading to an increased profit pool.
Based on our assessment, Bengaluru emerges as the most favorable market, given the overall supply and demand dynamics.
We are initiating coverage on Prestige and Sobha/Brigade with a buy rating. Prestige is our preferred choice, followed by Brigade.
: Buy | LTP Rs 486 | Objective Rs 675 | Up 38%
The increase in Prestige’s pre-sales performance can be maintained in the medium term. With an improved cash flow trajectory, the strength of its balance sheet should remain intact.
We expect its operating rental portfolio to quadruple to 12 million sq ft by FY24, resulting in a 3x increase in rental income to Rs 9 billion by FY25.
: Buy | LTP Rs 576 | Objective Rs 720 | More than 25%
Over the years, Brigade has grown all facets of its business through: a) a revamped residential strategy, and b) aggressive capital spending in its commercial business, which is now paying off.
We expect a further surge in residential activity as management monetizes its 35m² land bank over the next five to six years.
We expect rental income from BRGD to register a CAGR of 15% in FY22-24 to Rs 7.5 billion thanks to a recovery in leasing.
(The author is Head – Retail Research, . The recommendations, suggestions, views and opinions are his own. These do not represent the views of the Economic Times)