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India Equity Research Reports, IPO and Stock News
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Not a repeat of 2008
Recent correction in property stocks owing to the worries on tightening
credit conditions is reminiscent of the 2008-09. We argue that the current
credit conditions are far better than the worst of 2009 with balance sheet
gearing between 0.2x-0.8x as against 0.7x – 1.7x in Mar’09. While we
have sporadic price corrections in central Mumbai, we believe that
physical property prices will remain well over the Mar’09 trough as
transaction volumes are still 3x-4x the previous trough. Certain stock
prices viz. HDIL and IBREL, however, are now below the previous trough
adjusted for equity raisings and profits and looking up on the value
screen. Fundamentally, our top picks are DLF and Sobha as the play on
improving office leasing market thanks to IT hiring.
Stocks trading close to previous lows on an adjusted basis
The absolute lows during the previous melt-down of 2009 are still 32-73% below
the current stock prices, however, adjusting for equity raised and profits reported
since Mar’09 (i.e. the last 6 quarters), the downside appears restricted.
HDIL and Indiabulls Real estate stock prices are already lower than the previous
peak if adjusted as above and appear attractive on valuation screen. For DLF and
Unitech, we estimate that the land value support is only 16% and 7% away.
Balance sheets in a much better shape
With an exception of DLF, balance sheet gearing for stocks is now significantly
lower than the peak of 2009 and the risk of an acute credit crunch appears
extremely unlikely.
While DLF’s balance sheet debt has increased from Rs165bn in Mar’09 to Rs224bn
now (primarily due to DAL consolidation), the company has added Rs8bn / year of
rental assets as well significantly improving debt servicing capability.
Transactions are down YoY but 3-4x higher than 2008 lows
While industry sales volumes are down 15-20% over the last 6 months, we note
that the property transactions are still 3x-4x the previous lows.
Data for 4QCY10 shows that primary residential volumes declined 22% YoY in
Mumbai and were up 1% YoY in Gurgaon.
Office leasing market improving; DLF / Sobha top BUY ideas
Office absorption trend has continued to remain strong with 4QCY10 leasings of
8.5m sf, being +16% YoY. Office absorption for CY10 at 35m sf was highest ever.
Strong hiring trends in IT industry are likely to support leasing as well as residential
markets in Bangalore well into 2011. We prefer DLF and Sobha Developers as key
stocks to play the theme.
Following weak launches/sales by Unitech over the past few months and lower
pricing assumptions in Gurgaon for FY12, we cuts its earnings by 11-15% for FY11-
13 and cut Mar’12 NAV by 13% to Rs110/share.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Not a repeat of 2008
Recent correction in property stocks owing to the worries on tightening
credit conditions is reminiscent of the 2008-09. We argue that the current
credit conditions are far better than the worst of 2009 with balance sheet
gearing between 0.2x-0.8x as against 0.7x – 1.7x in Mar’09. While we
have sporadic price corrections in central Mumbai, we believe that
physical property prices will remain well over the Mar’09 trough as
transaction volumes are still 3x-4x the previous trough. Certain stock
prices viz. HDIL and IBREL, however, are now below the previous trough
adjusted for equity raisings and profits and looking up on the value
screen. Fundamentally, our top picks are DLF and Sobha as the play on
improving office leasing market thanks to IT hiring.
Stocks trading close to previous lows on an adjusted basis
The absolute lows during the previous melt-down of 2009 are still 32-73% below
the current stock prices, however, adjusting for equity raised and profits reported
since Mar’09 (i.e. the last 6 quarters), the downside appears restricted.
HDIL and Indiabulls Real estate stock prices are already lower than the previous
peak if adjusted as above and appear attractive on valuation screen. For DLF and
Unitech, we estimate that the land value support is only 16% and 7% away.
Balance sheets in a much better shape
With an exception of DLF, balance sheet gearing for stocks is now significantly
lower than the peak of 2009 and the risk of an acute credit crunch appears
extremely unlikely.
While DLF’s balance sheet debt has increased from Rs165bn in Mar’09 to Rs224bn
now (primarily due to DAL consolidation), the company has added Rs8bn / year of
rental assets as well significantly improving debt servicing capability.
Transactions are down YoY but 3-4x higher than 2008 lows
While industry sales volumes are down 15-20% over the last 6 months, we note
that the property transactions are still 3x-4x the previous lows.
Data for 4QCY10 shows that primary residential volumes declined 22% YoY in
Mumbai and were up 1% YoY in Gurgaon.
Office leasing market improving; DLF / Sobha top BUY ideas
Office absorption trend has continued to remain strong with 4QCY10 leasings of
8.5m sf, being +16% YoY. Office absorption for CY10 at 35m sf was highest ever.
Strong hiring trends in IT industry are likely to support leasing as well as residential
markets in Bangalore well into 2011. We prefer DLF and Sobha Developers as key
stocks to play the theme.
Following weak launches/sales by Unitech over the past few months and lower
pricing assumptions in Gurgaon for FY12, we cuts its earnings by 11-15% for FY11-
13 and cut Mar’12 NAV by 13% to Rs110/share.
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