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Post 4Q: Sobha screens well on debt reduction, earnings stability
Post 4QFY11, Sobha, Godrej Properties saw least consensus
downgrades
We analyze changes in FY12/13 Bloomberg consensus estimates over the past
six weeks and observe the least consensus downgrades in Sobha Developers
and Godrej Properties, while the largest downgrades were in Prestige Estates,
DLF, and Unitech. Since Sep-2010, we observe the largest revisions in DLF and
Unitech, which have seen FY12/13 consensus EPS estimates lowered by 35%+.
We believe higher EPS stability should generally command better valuations.
Overall 4QFY11 saw healthy revenue growth, lower margins
Our real estate coverage universe saw aggregate revenue growth of 45% yoy
led by Indiabulls Real Estate and Jaypee Infratech primarily on account of a low
base. 4QFY11 revenues grew by 16% on qoq basis led by Godrej Properties.
4QFY11 EBITDA grew 29% yoy as margins declined 441bp yoy. On a yoy basis,
we saw the largest decline in gross debt by Sobha, while Godrejand DLF saw the
largest increase in gross debt. Overall gross debt for our coverage universe
increased 1.1% qoq to Rs392bn (+6.4% yoy). 4QFY11 incremental pre-sales
amounted to Rs56bn vs. Rs64bn in 3QFY11.
Buy Sobha (On CL), Oberoi Realty, and HDIL
We believe consistent volume growth, driven by a rational pricing strategy,
could lead to lower earnings volatility. Our Buy-rated stocks (Sobha, HDIL, and
Oberoi) have reasonable sales volume momentum on account of following a
market-driven pricing strategy. We maintain our Buy rating (on CL) on Sobha
Developers (12-m FY12E RNAV-based TP of Rs340) as we believe that expansion
into new cities could drive volume and revenue growth over FY11-FY13E. We
also maintain our Buy ratings for Oberoi Realty (12-m FY12E RNAV-based TP of
Rs322) and HDIL (12-m FY12E RNAV-based TP of Rs216) on the back of the
rational pricing strategy followed by these Mumbai-based developers. We revise
our FY12-13E EPS for our coverage universe by +1% to -6% on account of higher
construction cost and adjusting for new launches. Consequently, we adjust our
12-m RNAV-based target prices by -1% to -3%, excluding Jaypee. For Jaypee
Infratech, we lower our 12-m RNAV-based target price to Rs65 (from Rs78) as we
increase NAV discount to 30% (from 20%) on account of recent land acquisition
issues in Greater Noida. We also introduce our FY14E estimates. Risks for the
sector – rapid price hikes exerting pressure on volumes, interest rate risk, and
volatility in input costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Post 4Q: Sobha screens well on debt reduction, earnings stability
Post 4QFY11, Sobha, Godrej Properties saw least consensus
downgrades
We analyze changes in FY12/13 Bloomberg consensus estimates over the past
six weeks and observe the least consensus downgrades in Sobha Developers
and Godrej Properties, while the largest downgrades were in Prestige Estates,
DLF, and Unitech. Since Sep-2010, we observe the largest revisions in DLF and
Unitech, which have seen FY12/13 consensus EPS estimates lowered by 35%+.
We believe higher EPS stability should generally command better valuations.
Overall 4QFY11 saw healthy revenue growth, lower margins
Our real estate coverage universe saw aggregate revenue growth of 45% yoy
led by Indiabulls Real Estate and Jaypee Infratech primarily on account of a low
base. 4QFY11 revenues grew by 16% on qoq basis led by Godrej Properties.
4QFY11 EBITDA grew 29% yoy as margins declined 441bp yoy. On a yoy basis,
we saw the largest decline in gross debt by Sobha, while Godrejand DLF saw the
largest increase in gross debt. Overall gross debt for our coverage universe
increased 1.1% qoq to Rs392bn (+6.4% yoy). 4QFY11 incremental pre-sales
amounted to Rs56bn vs. Rs64bn in 3QFY11.
Buy Sobha (On CL), Oberoi Realty, and HDIL
We believe consistent volume growth, driven by a rational pricing strategy,
could lead to lower earnings volatility. Our Buy-rated stocks (Sobha, HDIL, and
Oberoi) have reasonable sales volume momentum on account of following a
market-driven pricing strategy. We maintain our Buy rating (on CL) on Sobha
Developers (12-m FY12E RNAV-based TP of Rs340) as we believe that expansion
into new cities could drive volume and revenue growth over FY11-FY13E. We
also maintain our Buy ratings for Oberoi Realty (12-m FY12E RNAV-based TP of
Rs322) and HDIL (12-m FY12E RNAV-based TP of Rs216) on the back of the
rational pricing strategy followed by these Mumbai-based developers. We revise
our FY12-13E EPS for our coverage universe by +1% to -6% on account of higher
construction cost and adjusting for new launches. Consequently, we adjust our
12-m RNAV-based target prices by -1% to -3%, excluding Jaypee. For Jaypee
Infratech, we lower our 12-m RNAV-based target price to Rs65 (from Rs78) as we
increase NAV discount to 30% (from 20%) on account of recent land acquisition
issues in Greater Noida. We also introduce our FY14E estimates. Risks for the
sector – rapid price hikes exerting pressure on volumes, interest rate risk, and
volatility in input costs.
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