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Sunday, July 29, 2012

Brigade Enterprises –Gem in your Neighborhood!

Peter Lynch, the celebrated Mutual Fund Manager and Investor, used to believe that the best equity investments are made in the brand names you see everyday around you. Invest in what you know. So much so, once Peter went for a haircut in neighborhood saloon and came back and bought the stock of the listed Hair Saloon firm!

On similar lines, Brigade Enterprises is a known brand name in Bangalore, IT Capital of India. Owning a Brigade Apartment is a matter of prestige (Pardon the pun, Prestige is also a competitor). Other than Residential space, Brigade constructs commercial and retail property and leases them out. A noticeable aspect about Brigade which very few people are aware of is that Brigade outsources its construction activities to Infra players such as Ahluwalia, Simplex etc. 

Construction in itself is a very low margin, low value business. Owning the land, creating a premium brand and marketing the apartments is where the actual margins and money is. So Brigade is nothing more than a purely marketing company, which happens to be in construction business.

Brigade was very lucky to be among the last bunch of companies which rode the craziness of IPO market in Dec-2007, just before the bubble burst. The IPO came at a whooping valuations of Rs 360-390 price band and commanded a P/E ratio of 49! Promoters claimed that Net Asset Value of company is Rs 460 per share, based on land bank etc and that IPO is actually at a discount! Today the share is languishing at Rs 48 Rs, a crash of 85% and is available at deep value for value investors like us.

Fundamentally speaking, Brigade is one of the few Realty firms which is not in deep debt, unlike most of the other firms which are pursuing one CDR program after another. Revenues have recovered after slump of 2009 period, and have gone up from Rs 377 crores in 2009 to Rs 601 crores in 2012. Firm has paid regular dividends from last 5 years and Book Value of Brigade is a staggering 103 Rs per share. Thus at current market price, Brigade is available at 50% discount to its BV. Shareholding has been stable, and no case of promoter pledging, selling or losing its stake, unlike so many other Realty stories we hear on everyday basis.

Technically speaking, downside is very limited from here on. Stock has formed a huge double bottom on Monthly charts with RSI picking up, hence price should pick up from current levels to ambitious targets of 80 first and then 150+ as the overall market sentiment improves. 

At CMP of Rs 48 per share, this is definitely one of the better deep value buys in the market out there currently. Thanks for reading this article. Keep writing in to us.

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