)
The stock has risen 93 per cent in the past year, helping Razack enter the billionaire dollar club while doubling his investor’s wealth.
The stock seems to have taken faith from the company’s consistent performance. Sales have risen at a compounded annual rate (CAGR) of 23 per cent over the past five years. Its profits have risen at a CAGR of 32 per cent. The booming Bangalore market helped.
Razack also saw the downs in the business, when the Bangalore Police named him in connection with a wall collapse in the Prestige Shantiniketan project in 2008.
Mumbai-based Phoenix Mills and Godrej Properties have fared better in sales. However, Prestige is ahead in profit growth.
“They have been exceeding analyst guidance (forecast) for the past three years and are the market leader in Bangalore, with almost 15 per cent share,” said Adhidev Chattopadhyay, an analyst with HDFC Securities. “They also have a good commercial portfolio and rental income is growing steadily every year.” (See table).
Razack attributes the growth to presence in most micro markets of Bangalore and major southern markets such as Chennai. “We believe in right price, product and location. We have consistently met delivery schedules,” he said.
The company operates in the Rs 30 lakh to Rs 30 crore category and up to 80 per cent of its income comes from the Rs 30 lakh to Rs 1.5 crore segment. Real estate consultants attribute its success to quick decisions while buying land and negotiating with land owners. Juggy Marwaha, managing director, JLL, south, said Prestige took only three months for the recent deal to buy land from Siemens in Bangalore. Developers normally take double that time. JLL acted as an advisor to the deal.
“There are very few developers who have that comfort with landlords like Razack,” Marwaha says.
Many consultants say the steady Bangalore market contributed to Prestige's growth. According to a recent Bloomberg report, home sales in there rose 10 per cent to 17.77 million sq ft in the three months ended June 30 from the previous quarter, highest among top Indian cities.
Demand for Grade-A offices will climb three per cent to 22.9 mn sq ft in 2014 from last year, the first increase in three years and the strongest demand to be seen in Bangalore, said Bloomberg, quoting property consultant Cushman & Wakefield.
However, with a series of launches in the past couple of years and deliveries due, the company has a big task ahead, say analysts. “Execution remains the biggest concern for us, as the company has to deliver 60 mn sq ft of ongoing projects over the next four years, which is three times what it delivered in the past four years,” said Tejas Sheth, an analyst with Emkay Global Financial Services, in a recent report.
Added Chattopadhyay of HDFC Securities: “Execution is the only key thing to look out. If they are able to do it, it is great. Even if they can do 25 mn sq ft in the next two years, it is good enough.”
Razack is confident. “We have given the guidance (forecast) of 10 mn sq ft this year. We will do that comfortably and we are geared to complete the rest,” he said. Adding: "There could be some minor hiccups but there won’t be any unjustifiable delay in deliveries.”
JLL’s Marwaha says barring a few developers such as Prestige, most of the big ones in Bangalore have slipped in delivery on time.
Razzak says the company has Rs 8,000 crore of unbooked revenue on the books. “Even if we do not sell for two years, we will get Rs 3,000 crore of revenues in the next two years,” he said.
With new land acquisition and launches, Prestige’s debt to equity has also risen consistently over the past couple of years.
Razack says the debt is being repaid by the growing rental income every year. “We have a strong portfolio of IT (information technology) parks and malls. Even if debt grows, there is no stress on repayment. The rental income will take care of that,” he added.
With the company’s Rs 600 crore qualified institutional placement, where its issue was subscribed 1.5 times, the debt to equity ratio will come down to 0.6, from 0.95, says Chattopadhyay.
