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APIL
Waiting for more to come
Event
We review our NAV estimates and target prices for all of the developers under
our coverage. The company has shown a pickup in sales volume, but we
believe that upside is capped, as we believe that the NCR suburb market is
likely to have a 20–30% drop in the run-rate of sales volumes in the next 12
months. We upgrade APIL to Neutral from Underperform due to recent stock
price correction and company’s decent operational performance.
Impact
Sector forecasts adjusted: We have increased our target discount to NAV
for all stocks under coverage. This reflects the risk of downgrades in the major
markets (Mumbai and NCR residential) and execution delays due to the tight
funding scenario.
NAV estimates changed in case of NCR based developers: Since we last
ran a comb through our NAV estimates, the NCR residential market has
become very weak. While our NAV estimates did reflect bearish trends in this
market, we have still been negatively surprised on volumes.
Earnings and target price revision
Reduction in target price and NAV discount: We have increased our target
NAV discount from 30% to 40%. Also, we have reduced our target price from
Rs58 to Rs49. We have not changed our NAV estimates, even though we
have a bearish view of the suburbs of NCR because of the company’s strong
operational performance.
Changes to earnings estimates: We have reduced our FY12 and FY13 EPS
estimates by ~2% and 8% as a result of the factors discussed above.
Price catalyst
12-month price target: Rs49.00 based on a Sum of Parts methodology.
Catalyst: Policy tightening; slowdown in sales volumes in next 6–12 months.
Action and recommendation
Given APIL’s high gearing levels and unattractive micro-market exposure, we
believe it should trade at a 40% discount to NAV. We recommend switching
into Anant Raj Industries (ARCP IN, Rs75.7, Outperform, TP: Rs108.00) and
DLF (DLFU IN, Rs227.8, Outperform, TP: Rs314.00) to gain exposure to what
we consider to be a more attractive micro-market/product mix in the NCR.
Key picks in the sector: Despite the underperformance by the Indian real
estate sector, we don’t think this is a broad-based opportunity to accumulate.
We pick stocks by ‘elimination’ of obvious risks. We would avoid high-debt,
low cashflow yield companies and stick to players facing limited ‘news flow’
risk with operations in ‘sane’ markets (Bangalore/IT commercial/retail).
Our top bullish ideas are Prestige (PEPL IN, Rs143.45, OP, TP: Rs210) and
Sobha (SOBHA IN, Rs269.6, OP, TP: Rs430), followed by HDIL (HDIL IN,
Rs150, OP, TP: Rs230), Phoenix (PHNX IN, Rs205, OP, TP: Rs270) and
DLF. We would avoid investing in Indiabulls Real Estate (IBREL IN, Rs119.6,
UP, TP: Rs101), Omaxe (OAXE IN, Rs133.1, UP, TP: Rs92) and Unitech (UT
IN, Rs36.40, N, TP: Rs40).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
APIL
Waiting for more to come
Event
We review our NAV estimates and target prices for all of the developers under
our coverage. The company has shown a pickup in sales volume, but we
believe that upside is capped, as we believe that the NCR suburb market is
likely to have a 20–30% drop in the run-rate of sales volumes in the next 12
months. We upgrade APIL to Neutral from Underperform due to recent stock
price correction and company’s decent operational performance.
Impact
Sector forecasts adjusted: We have increased our target discount to NAV
for all stocks under coverage. This reflects the risk of downgrades in the major
markets (Mumbai and NCR residential) and execution delays due to the tight
funding scenario.
NAV estimates changed in case of NCR based developers: Since we last
ran a comb through our NAV estimates, the NCR residential market has
become very weak. While our NAV estimates did reflect bearish trends in this
market, we have still been negatively surprised on volumes.
Earnings and target price revision
Reduction in target price and NAV discount: We have increased our target
NAV discount from 30% to 40%. Also, we have reduced our target price from
Rs58 to Rs49. We have not changed our NAV estimates, even though we
have a bearish view of the suburbs of NCR because of the company’s strong
operational performance.
Changes to earnings estimates: We have reduced our FY12 and FY13 EPS
estimates by ~2% and 8% as a result of the factors discussed above.
Price catalyst
12-month price target: Rs49.00 based on a Sum of Parts methodology.
Catalyst: Policy tightening; slowdown in sales volumes in next 6–12 months.
Action and recommendation
Given APIL’s high gearing levels and unattractive micro-market exposure, we
believe it should trade at a 40% discount to NAV. We recommend switching
into Anant Raj Industries (ARCP IN, Rs75.7, Outperform, TP: Rs108.00) and
DLF (DLFU IN, Rs227.8, Outperform, TP: Rs314.00) to gain exposure to what
we consider to be a more attractive micro-market/product mix in the NCR.
Key picks in the sector: Despite the underperformance by the Indian real
estate sector, we don’t think this is a broad-based opportunity to accumulate.
We pick stocks by ‘elimination’ of obvious risks. We would avoid high-debt,
low cashflow yield companies and stick to players facing limited ‘news flow’
risk with operations in ‘sane’ markets (Bangalore/IT commercial/retail).
Our top bullish ideas are Prestige (PEPL IN, Rs143.45, OP, TP: Rs210) and
Sobha (SOBHA IN, Rs269.6, OP, TP: Rs430), followed by HDIL (HDIL IN,
Rs150, OP, TP: Rs230), Phoenix (PHNX IN, Rs205, OP, TP: Rs270) and
DLF. We would avoid investing in Indiabulls Real Estate (IBREL IN, Rs119.6,
UP, TP: Rs101), Omaxe (OAXE IN, Rs133.1, UP, TP: Rs92) and Unitech (UT
IN, Rs36.40, N, TP: Rs40).
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