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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● In our new report, Dark Clouds: Prefer cash flows over leverage,
we argue that FY12 could be a challenging year for volumes, if
property prices do not witness 10-30% correction. We initiate
coverage of Oberoi Realty, Prestige Estates, Godrej Properties
and HDIL.
● Volumes in major cities are showing signs of a slowdown owing to
property prices scaling new highs, as evident from developers’
weak 1H FY11 pre-sales. At current affordability levels, we see
hardly any room for further price increases.
● Despite a buoyant property market over the past 18 months,
operating cash flows have remained weak for most developers.
Debt funding is expected to dry up and internal cash flow
generation by cutting prices and focusing on volumes should be
key. We expect developers with no or low gearing, stronger
operating cash flow generation and higher ROEs to outperform.
● Our top picks are Oberoi Realty, Sobha, IBREL, Prestige and
Unitech. We expect DLF and Parsvnath to UNDERPERFORM.
Developers choose price hikes over volume growth
Property prices forming new highs in major cities clearly indicate that
developers chose higher prices over stronger volumes at the onset of
market recovery. Property prices in Mumbai and Gurgaon were up
30% and 24% YoY, respectively, in Oct-10. As a result, volumes have
started to slow down, and the same was also visible from lower-thanexpected
bookings reported by developers for 1H FY11. At current
affordability levels and with mortgage rates expected to go up, we see
hardly any room for further price increases and expect volume
disappointment to continue in FY12, unless prices correct by 10-30%.
Weak cash flows + tightening liquidity = tough times
Despite a buoyant property market over the past 18 months, post-taxand-
interest operating cash flows have remained weak for most
developers. DLF, HDIL and GPL have reported negative cash flows,
while Unitech, Oberoi and Sobha reported positive cash flows but
below expectations. If pre-sales volumes see a slowdown in FY12,
cash flows are unlikely to see an improvement from current levels.
With liquidity tightening, developers are expected to face difficulties in
funding their construction spend and interest expenses ahead.
Fundamentals to drive sustained outperformance: Top
picks - Oberoi, Sobha, IBREL, Prestige & Unitech
We expect developers with no or low gearing, stronger operating cash
flow generation and higher ROEs to outperform. We like Oberoi for its
healthy balance sheet and NAV growth prospects, Sobha for its volume
focus and debt repayment, IBREL for its cheap valuations and value
unlocking through proposed restructuring, Prestige for its strong
presence across all verticals and Unitech on expectations of strong cash
flow generation. We expect underperformance from DLF, owing to weak
cash flow generation and pursuit of a high-risk strategy, and Parsvnath,
owing to expected difficulties in upcoming debt repayments.
In our detailed report, we initiate coverage of Oberoi Realty, Prestige
Estates with an OUTPERFORM, and Godrej Properties and HDIL with
a NEUTRAL.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
● In our new report, Dark Clouds: Prefer cash flows over leverage,
we argue that FY12 could be a challenging year for volumes, if
property prices do not witness 10-30% correction. We initiate
coverage of Oberoi Realty, Prestige Estates, Godrej Properties
and HDIL.
● Volumes in major cities are showing signs of a slowdown owing to
property prices scaling new highs, as evident from developers’
weak 1H FY11 pre-sales. At current affordability levels, we see
hardly any room for further price increases.
● Despite a buoyant property market over the past 18 months,
operating cash flows have remained weak for most developers.
Debt funding is expected to dry up and internal cash flow
generation by cutting prices and focusing on volumes should be
key. We expect developers with no or low gearing, stronger
operating cash flow generation and higher ROEs to outperform.
● Our top picks are Oberoi Realty, Sobha, IBREL, Prestige and
Unitech. We expect DLF and Parsvnath to UNDERPERFORM.
Developers choose price hikes over volume growth
Property prices forming new highs in major cities clearly indicate that
developers chose higher prices over stronger volumes at the onset of
market recovery. Property prices in Mumbai and Gurgaon were up
30% and 24% YoY, respectively, in Oct-10. As a result, volumes have
started to slow down, and the same was also visible from lower-thanexpected
bookings reported by developers for 1H FY11. At current
affordability levels and with mortgage rates expected to go up, we see
hardly any room for further price increases and expect volume
disappointment to continue in FY12, unless prices correct by 10-30%.
Weak cash flows + tightening liquidity = tough times
Despite a buoyant property market over the past 18 months, post-taxand-
interest operating cash flows have remained weak for most
developers. DLF, HDIL and GPL have reported negative cash flows,
while Unitech, Oberoi and Sobha reported positive cash flows but
below expectations. If pre-sales volumes see a slowdown in FY12,
cash flows are unlikely to see an improvement from current levels.
With liquidity tightening, developers are expected to face difficulties in
funding their construction spend and interest expenses ahead.
Fundamentals to drive sustained outperformance: Top
picks - Oberoi, Sobha, IBREL, Prestige & Unitech
We expect developers with no or low gearing, stronger operating cash
flow generation and higher ROEs to outperform. We like Oberoi for its
healthy balance sheet and NAV growth prospects, Sobha for its volume
focus and debt repayment, IBREL for its cheap valuations and value
unlocking through proposed restructuring, Prestige for its strong
presence across all verticals and Unitech on expectations of strong cash
flow generation. We expect underperformance from DLF, owing to weak
cash flow generation and pursuit of a high-risk strategy, and Parsvnath,
owing to expected difficulties in upcoming debt repayments.
In our detailed report, we initiate coverage of Oberoi Realty, Prestige
Estates with an OUTPERFORM, and Godrej Properties and HDIL with
a NEUTRAL.
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