Prestige Estates Projects Ltd has been on the radar of investors following recent media reports of a potential asset sale. In August, its shares had rallied by nearly 26%. The company was in advanced talks with global investment firm Blackstone Group for the sale of its commercial assets and the estimated deal size was ₹12,000-13,500 crore. It was reported that the funds would be used to pare debt.
The Prestige management did talk about evaluating various opportunities for restructuring, investments or divestments, in a post earnings conference call. However, it denied the existence of a deal with Blackstone.
A reduction in debt is a key near-term trigger for the Prestige Estates stock. In the June quarter, the company’s net debt-to-equity ratio improved to 1.50 times from 1.86 times in the same quarter last year. This improvement is because of the issue of equity of ₹899.50 crore in the March quarter through a qualified institutional placement and private placements.
However, analysts cautioned about the spurt in the stock. The stock could get a short-term bounce from such a deal, but the bleak growth outlook of the sector would keep upside capped, they said. The stock corrected by more than 6% on Monday.
Apart from its huge debt, analysts are also wary of the firm’s capital-intensive expansion plan. “We remain cautious on the company’s strategy to explore geographies beyond south India and largely toward projects such as hotel and slum rehabilitation, which require higher upfront capital investment,” analysts at Elara Capital Ltd said.
Prestige’s June quarter earnings were disappointing with robust commercial rental collections being the only bright spot. Its residential business is expected to see a slow recovery because of delayed launches. Its hotel business is seen as a drag on overall earnings for a longer time given the cyclical nature of the hospitality sector.
Meanwhile, the stock is trading at a one-year forward price-to-earnings multiple of 24 times, according to Bloomberg estimates. For the stock to get re-rated, the company would need to shed some weight off its balance sheet.