Prajay Engineers Syndicate (PESL), a Hyderabad-based company operating in the real estate and hospitality segment, concentrates on property development in the city.
Prajay Engineers Syndicate (PESL) is a Hyderabad-based company operating in the real estate and hospitality segment.
It mainly concentrates on property development in Hyderabad, which is known as the fifth metropolis city. With sufficient land bank at its disposal, PESL is well poised to take advantage of the real estate boom in Hyderabad. Investors can look forward for healthy returns over a time span of one year.
Realty segment
PESL has a substantial land bank of around 850 acres at its disposal with clear titles in and around Hyderabad. 28-29 mn sq.ft is to be developed over a period of five years. 70% of this will be developed for residential purposes and the rest will be for commercial purposes.
“We expect robust growth in the real estate business. We have adequate land and, even if do not purchase land in future, our annual turnover will be Rs 6,000-7,000 crore over a period of five years,” says Santosh Rathi, CFO of the company.
There is huge demand for real estate in Hyderabad and prices in the city have not moved in tandem with the prices elsewhere in the country. The current price range of property can be anywhere between Rs 1,000 and Rs 4,500 per sq ft in Hyderabad, adds Rathi.
Hyderabad currently faces a shortage of 75000 dwelling units as per a recent study by CRISIL and 100000 units as per a study of Knight Frank, says Rathi. Hyderabad’s reputation as an IT destination is drawing talent across the country into the city.
Hyderabad is expected to see 100000 high disposable income jobs.
Hospitality segment
On the hospitality front, PESL has already made its mark with its brand name Celebrity. Celebrity Club has 100 rooms, while Celebrity Boutique Hotel, which is close to the airport, has 30 rooms with an ARR in the range of Rs 2,200 to Rs 2,500. A 127-room 4 star category holiday retreat is expected to operational by May 2007. The tariffs for this may be in the range of Rs 3,500 plus taxes.
PESL has already finalised a deal to set up a 5 star hotel in Goa. It recently announced a Rs 450-500 crore diversification plan into the hotel & hospitality segment. It plans to create 1000 rooms by 2009, both in the 5-star category and the 3-star budget category. It will tie up with a hotel chain to manage the property while the ownership will remain with it.
Though the share of the hospitality segment in PESL’s revenue is only 8% in comparison with the construction business’ 92%, there is enough scope for this segment to grow. Hyderabad is a business centre and, going by industry estimates, almost 90% of the guests are business travelers.
Investment rationale
Realty prices in Hyderabad are expected to firm up owing to higher demand and rising disposable incomes due to the IT/ITES/BPO boom. Positive government initiatives and favourable FDI policies are expected to boost the prospects of the sector. Moreover, its timely diversification into the hospitality sector will help PESL improve its overall performance.
PESL is also expected to target new destinations like Bhuvaneshwar, Nagpur, Hubli, Dharwad. We expect the company perform well in the coming years.
Valuations
The Q3 FY07 results have been impressive with topline growing from Rs 19.09 crore to Rs 42.08 crore, registering a jump of 120%. The operating profit and PAT also grew by 194% and 203.79%, respectively. We expect PESL to end the year FY07 with a topline of Rs 240 crore and a PAT of Rs 60 crore.
At its current market price of Rs 279.60, the stock is available at 18.5X its earnings of FY07 and at 8.4X its earnings of FY08. PESL is a good addition to the portfolio at these levels where investors can expect a 30% return.
BSE Code: 531746
NSE Code: PRAENG
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