BUY

Results Update Embassy Office Parks REIT Target Price

30th Jan 2023 Real Estate 386

India Office Remains A Long-Term Growth Opportunity

(CMP as of 23 Jan 2023)
Est. Vs. Actual for Q3FY23: Revenue – MISS; EBITDA Margin – MISS; PAT –
CMP (Rs) 336
BEAT
Upside /Downside (%) 15.0%
Changes in Estimates post Q3FY23 High/Low (Rs) 406/315
Market cap (Cr) 31,940
FY23E/FY24E: Revenue 4.8%/(2.6); EBITDA Margins 79.2%/79.7%; PAT
Avg. daily vol. (6m)Shrs. 60,000
1.7%/(7.4%)
No. of shares (Cr) 94
Recommendation Rationale
Shareholding (%)
 Leased 1 msf across 19 deals in Q3FY23 at 13% leasing spreads with YTD total
Jun-22 Sep-22 Dec-22
leasing of 4.4 msf across 71 deals
 Announced distributions of Rs 5,03 Cr or Rs 5.31 per unit, marking the 15th Promoter - - -
consecutive quarter of 100% payouts FIIs - - -
 Hotel revenue also increased due to an improvement in average occupancy to MFs / UTI - - -
47% YoY (vs. 37%) and average daily rates to Rs 9,697 YoY (vs. Rs 6,397). Banks / FIs - - -
Sector Outlook: Positive Others - - -
Company Outlook & Guidance: Average occupancies for EMBASSY are increasing
Financial & Valuations
post-Covid-19 as global and domestic corporates have increased hiring and are looking
Y/E Mar (Rs FY23E FY24E FY25E
for a quality place for their employees to improve productivity in offices. Cr)
Net Sales 3,382 3,936 4,400
Current Valuation: PE 25x for FY25 earnings (Earlier Valuation: No Change, PE EBITDA 2,661 3,117 3,508
25x) Net Profit 720 1,210 1,530
EPS (Rs) 8.2 13.0 15.4
Current TP: Rs 386/share (Earlier TP: Rs 400/share) PER (x) 40.9 25.9 21.8
Recommendation: “BUY” P/BV (x) 15.8 14.4 12.7
EV/EBITDA (x) 1.1 1.1 1.1
Financial Performance: ROE (%) 2.7% 4.4% 5.2%
EMBASSY reported revenue of Rs 865 Cr, up 16.8% YoY, which stood below our
Change in Estimates (%)
estimates. The company’s commercial office business grew by 7.9% YoY to Rs 600 Cr
and the hotel business grew to Rs 90 Cr YoY from Rs 24 Cr. The NOI increased by Y/E Mar FY23E FY24E FY25E
13.5% YoY and the EBITDA margins remained healthy in the range of 75.7%. The Sales 3,382 3,936 4,400
company reported PAT de-growth of 21.6% YoY led by high depreciation costs and EBITDA 2,661 3,117 3,508
Interest costs. The company has offered total distribution of Rs 500 Cr (payout ratio PAT 720 1,210 1,530
100%) which resulted in a distribution per unit of Rs 5.27.
ESG disclosure Score**
In Q3FY23, EMBASSY leased a 0.8 msf area as compared to 0.4 msf on a YoY basis.
Environmental N.A.
This includes a new lease of 0.4 msf and renewed area of 0.4 msf. Moreover, average
Disclosure
Social Disclosure N.A.
rents have increased to Rs 80 psf from Rs 73.5 psf on a YoY basis which would improve
the company’s profitability moving forward. Hotel revenue also increased due to an Score
Governance Disclosure N.A.
improvement in average occupancy to 47% YoY (vs. 37%) and average daily rates to ScoreESG Disclosure
Total N.A.
Rs 9,697 YoY (vs. Rs 6,397). Score
Source: Bloomberg, Scale: 0.1-100
Outlook: Average occupancies for EMBASSY are increasing post Covid-19 as the **Note: This score measures the amount of ESG
data a company reports publicly and does not
global and domestic corporates have increased hiring and are looking for a quality place measure the company's performance on any data
for their employees to improve productivity in offices. Furthermore, the Technology and point. All scores are based on 2020 disclosures
Finance sectors are adding more growth to the company.
Relative performance
Valuation & Recommendation: We recommend a BUY rating on the stock. 165
145
Key Financials (Consolidated) 125
105
Variance 85
(Rs Cr) Q3FY23 QoQ (%) YoY (%) Axis Est. 65
%
45
Net Sales 865 1.0 16.8 900 -3.8 25
Jan-20 Jun-20 Nov-20 Apr-21 Oct-21 Mar-22 Aug-22 Jan-23
EBITDA 655 1.6 12.6 670 -2.2
Embassy Off.REIT BSE Sensex
EBITDA Margin 75.7% 46 -284 74.4% -
Net Profit 163 26.8 -21.6 140 16.5 Source: Capitaline, Axis Securities
EPS (Rs) 1.9 26.8 -21.6 1.6 16.5
Source: Company, Axis Research Ankush Mahajan
Research Analyst

Email: ankush.mahajan@axissecurities.in

1
Key Risks to our Estimates and TP
 The economic slowdown may impact the company’s profitability.

 Low rental yield with a fall in the occupancies

 An increase in debt levels may impact the company’s profitability

Change in Estimates
New Old % Change

FY23E FY24E FY25E FY23E FY24E FY25E FY23E FY24E FY25E

Sales 3,382 3,936 4,400 3,391 3,756 4,515 (0.3) 4.8 (2.6)
EBITDA 2,661 3,117 3,508 2,668 2,975 3,600 (0.2) 4.8 (2.5)
PAT 720 1,210 1,530 1,044 1,231 1,652 (3.0) (1.7) (7.4)
Source: Company, Axis Securities

2
Q3FY23 Results Review: EMBASSY REITS
Rs Cr Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 YoY (%) QoQ (%)
Revenues 741 749 829 857 865 16.8 1.0
Growth (%) 30.7% 1.2% 12.4% 16.6% 16.8%
Direct expenses 120 116 152 153 161
NOI 621 633 677 704 705 13.5 0.2
NOI margins 83.9% 84.5% 81.7% 82.1% 81.5%
Indirect expenses 39 58 54 59 50
EBITDA 582 574 623 645 655 12.6 1.6
EBITDAM (%) 78.6% 76.7% 75.1% 75.3% 75.7% -284 46
Other income 29 34 31 39 41
Depreciation 199 202 220 279 283 42.1 1.3
Finance costs 208 193 231 246 245
Impairment loss 0 0 0 0 0
PBT before Ass. 204 213 203 159 169 -17.5 6.2
Profit from associates 24 26 20 13 21
Profit before tax 228 239 223 172 190 -17.0 10.0
Tax 20 -40 44 44 26
Tax (%) 8.9% -16.9% 19.8% 25.3% 13.9%
Net profit 208 279 179 129 163 -21.6 26.8
PAT margins 28.1% 37.3% 21.6% 15.0% 18.8%
Source: Company, Axis Securities

Revenue Breakup
Particulars (Rs Cr) Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 YoY (%) QoQ (%)
Real estate (Rental) 556 555 586 595 600 7.9 0.8
Real estate (Other) 131 130 131 149 138 5.8 -7.1
Hotel (Room revenue) 13 9 31 46 51 294.5 10.7
Hotel (F&B) 11 8 28 35 40 248.2 14.7
Solar 31 44 41 33 37 18.3 12.5
Source: Company, Axis Securities

Key highlights
Particulars Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23
Distribution (Rs Cr) 493 499 505 518 500
Distribution per unit ( Rs DPU) 5.20 5.27 5.33 5.46 5.27
Completed Area (msf) 33.6 33.8 33.8 33.4 34.3
Occupancy % 87.0 87.1 87.0 87.0 86.0
Average rents (Rs psf pm) 73.5 75.0 77.0 79.0 80.0
New Lease 0.4 0.6 1.8 1.6 0.5
Source: Company, Axis Securities

3
Financials (consolidated)
Profit & Loss (Rs Cr)
Y/E March FY22A FY23E FY24E FY25E
Net Sales 2,963 3,382 3,936 4,400
Growth (%) 25.5% 14.1% 16.4% 11.8%
Total Expenditure 665 720 819 891
Employee Expenses 23 27 31 35
% of sales 0.8% 0.8% 0.8% 0.8%
Other Expenses 642 693 787 856
% of sales 21.7% 20.5% 20.0% 19.5%
EBIDTA 2,298 2,661 3,117 3,508
EBITDAM (%) 77.6% 78.7% 79.2% 79.7%
Interest 829 949 889 901
EBIT 1,470 1,713 2,229 2,608
EBITM (%) 49.6% 50.7% 56.6% 59.3%
Depreciation 796 1,070 1,033 1,056
Other Income 127 133 140 147
Share of P/L 96 71 88 101
Exceptional items, net 0 0 0 0
PBT 896 847 1,424 1,799
Tax Rate (%) 0.9% 15.0% 15.0% 15.0%
Tax 8 127 214 270
Reported PAT 888 720 1,210 1,530
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY22A FY23E FY24E FY25E
Share Capital 28,826 30,826 32,826 34,826
Reserves & Surplus -2,940 -4,219 -5,009 -5,480
Shareholders Fund 25,887 26,607 27,817 29,347
- Long Term Borrowings 12,074 13,174 12,174 12,174
- Deferred Tax 5,176 4,176 4,176 4,176
- Other Long Term Liabilities 440 440 440 440
- Other Current Liabilities 1,620 1,826 2,125 2,376
TOTAL EQUITY & LIABILITIES 45,196 46,223 46,733 48,513
Net Block 3,023 3,123 3,223 3,323
CWIP 32 32 32 32
Investment property 28,052 29,000 31,000 30,000
Investment property 678 678 678 678
Goodwill 6,405 6,300 6,300 6,300
Other intangible assets 1,398 1,398 1,398 1,398
Equity accounted investee 2,363 2,263 2,263 2,263
- Fixed Assets 41,951 42,794 44,894 43,994
- Other Non Current Assets 2,270 2,536 2,952 3,300
- Inventories 1 2 2 2
- Trade Receivables 61 65 75 84
- Cash & Cash Equivalents 615 623 -1,428 867
- Other Current Assets 299 203 236 264
TOTAL ASSETS 45,196 46,223 46,732 48,512
Source: Company, Axis Securities

4
Cash Flow (Rs Cr)
Y/E March FY22A FY23E FY24E FY25E
PBT 896 847 1,424 1,799
Add: Depreciation 796 1,070 1,033 1,056
Add: Interest 829 949 889 901
Cash flow from operations 2,521 2,866 3,345 3,756
Change in working capital -75 -31 161 134
Taxes 8 127 214 270
Miscellaneous expenses 0 0 0 0
Net cash from operations 2,588 2,770 2,971 3,352
Capital expenditure -1,310 -1,913 -3,133 -156
Change in Investments 0 0 0 0
Net cash from investing -1,310 -1,913 -3,133 -156
Increase/Decrease in debt 1,472 1,100 -1,000 0
Dividends -2,063 -2,000 -2,000 -2,000
Proceedings from equity 0 2,000 2,000 2,000
Interest -829 -949 -889 -901
Others -186 -1,000 0 -0
Net cash from financing -1,606 -849 -1,889 -901
Net Inc./(Dec.) in Cash -327 8 -2,050 2,295
Opening cash balance 943 615 623 -1,428
Closing cash balance 615 623 -1,428 867
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY22A FY23E FY24E FY25E
Sales growth 25.5 14.1 16.4 11.8

OPM 77.6 78.7 79.2 79.7

Oper. profit growth 24.2 15.8 17.1 12.5
COGS / Net sales 0.0 0.0 0.0 0.0
Overheads/Net sales - - - -
Depreciation / G. block 1.9 2.5 2.3 2.4
Effective interest rate 0.9 15.0 15.0 15.0

Net wkg.cap / Net sales - - - -

Net sales / Gr block (x) 0.1 0.1 0.1 0.1

RoCE 3.3 3.8 4.6 5.5

Debt/equity (x) 0.5 0.5 0.4 0.4
Effective tax rate 0.9 15.0 15.0 15.0
RoE 3.4 2.7 4.4 5.2
Payout ratio (Div/NP) 232.2 277.7 165.3 130.8

EPS (Rs.) 10.8 8.2 13.0 15.4

EPS Growth 27.2 (18.9) 68.1 26.4
CEPS (Rs.) 16.3 16.5 14.0 12.9
DPS (Rs.) 25.2 22.8 21.4 20.2
Source: Company, Axis Securities

5
 NEERAJ Digitally signed by NEERAJ
CHADAWAR

CHADAWAR Date: 2023.01.30 10:31:46

+05'30'

Embassy Office Parks REIT Price Chart and Recommendation History

(Rs)

Date Reco TP Research

10-Aug-20 HOLD 390 Result Update
03-Nov-20 HOLD 390 Result Update
15-Feb-21 HOLD 376 Result Update
03-May-21 HOLD 340 Result Update
17-Aug-21 BUY 400 Result Update
08-Nov-21 BUY 410 Result Update
07-Feb-22 BUY 420 Result Update
02-May-22 BUY 410 Result Update
22-Jul-22 BUY 425 Result Update
27-Oct-22 BUY 400 Result Update
30-Jan-23 BUY 386 Result Update

Source: Axis Securities

6
 About the analyst

Analyst: Ankush Mahajan

Contact Details: ankush.mahajan@axissecurites.in

Sector: Midcaps/ Pharma Sector

Analyst Bio: Ankush Mahajan is MBA (Finance) from SMVDU with over 12 years of research experience in the
Midcaps/ Pharma Sector

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
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7
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

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UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

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