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India Equity Research Reports, IPO and Stock News
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Investment view –BSE Realty gained 7% over the last fortnight outperforming the
broader market (Sensex) by 5%. This was primarily driven by HDIL (+15% on
positive newsflow on airport shifting) and DLF (+7% M/M); while rest of the
sector remained largely a laggard. At valuations of 5-10x FY13E P/E, 1.2x FY13
P/B and substantial NAV discount (ranging 30%-50%) – the sector is trading
close to GFC levels. However, fundamental pressures given inflationary
headwinds (further rate hike expectations of 50bps in FY12), tight funding
environment and muted physical market trends (volumes/pricing) will likely keep
the sector performance range bound in the near term. Our top picks include DLF
(debt reduction over 2H) and IBREL (cheap valuations- adjusted fwd P/B of 0.3x).
Physical market fundamentals:
Residential: A long wait to September likely- YTD CY11 volumes remain
flat at CY10 levels. However, at the margin there has been a 18% M/M decline
in March as launch activity has slowed down (vacations/monsoons and rate
hikes). Home loan rates are now at ~11% levels and are just 75bps below GFC
levels. NCR & Chennai after witnessing record volumes in Dec-Feb have taken
a breather. Mumbai absorption has remained sluggish (down 20% Q/Q) while
Bangalore seems to be picking up again post a muted Mar-Q. Pricing in most
markets has remained largely stable though anecdotally some cuts (10-15%)
have happened in Mumbai. Jun-Sep is a seasonally weak period hence
meaningful increase is unlikely over next 3 months. Late Sep, the festival season
starts and coincides with increased launch activity. In our view, if a recovery in
volumes happens, it will largely be around that period.
Office absorption remains healthy-1Q witnessed absorption of 9.3msf of
office space vs. 10.7msf in 4Q10. For full year CY11, JLL expects absorption to
increase to 37msf (vs. 30.5msf in CY10) surpassing the 2007-08 peak levels.
This seems achievable at the current quarterly lease run rate. While supply
pipeline for 2011 is considerable at 61msf and is likely to keep the vacancy
levels high (>20%); we believe that completions may start getting deferred
given current tight funding environment. Rentals have started to increase in key
cities in 1Q. Going into CY11, JLL expects Bangalore and Hyderabad to
outperform primarily due to high pre leasing and affordable rents.
Retail absorption gaining momentum- 2010 marked the beginning of a
meaningful recovery in the retail segment with retailers resuming back their
expansion plans. JLL expects the absorption to strengthen further in 2011 to
almost 12msf above the peak level of 9.6msf seen in CY07. Regarding supply
we note that CY10 witnessed <40% of initial supply estimates coming onstream thereby resulting in a healthy demand supply balance. As per C&W, only
half of CY11 supply projections (19msf) may actually materialize.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment view –BSE Realty gained 7% over the last fortnight outperforming the
broader market (Sensex) by 5%. This was primarily driven by HDIL (+15% on
positive newsflow on airport shifting) and DLF (+7% M/M); while rest of the
sector remained largely a laggard. At valuations of 5-10x FY13E P/E, 1.2x FY13
P/B and substantial NAV discount (ranging 30%-50%) – the sector is trading
close to GFC levels. However, fundamental pressures given inflationary
headwinds (further rate hike expectations of 50bps in FY12), tight funding
environment and muted physical market trends (volumes/pricing) will likely keep
the sector performance range bound in the near term. Our top picks include DLF
(debt reduction over 2H) and IBREL (cheap valuations- adjusted fwd P/B of 0.3x).
Physical market fundamentals:
Residential: A long wait to September likely- YTD CY11 volumes remain
flat at CY10 levels. However, at the margin there has been a 18% M/M decline
in March as launch activity has slowed down (vacations/monsoons and rate
hikes). Home loan rates are now at ~11% levels and are just 75bps below GFC
levels. NCR & Chennai after witnessing record volumes in Dec-Feb have taken
a breather. Mumbai absorption has remained sluggish (down 20% Q/Q) while
Bangalore seems to be picking up again post a muted Mar-Q. Pricing in most
markets has remained largely stable though anecdotally some cuts (10-15%)
have happened in Mumbai. Jun-Sep is a seasonally weak period hence
meaningful increase is unlikely over next 3 months. Late Sep, the festival season
starts and coincides with increased launch activity. In our view, if a recovery in
volumes happens, it will largely be around that period.
Office absorption remains healthy-1Q witnessed absorption of 9.3msf of
office space vs. 10.7msf in 4Q10. For full year CY11, JLL expects absorption to
increase to 37msf (vs. 30.5msf in CY10) surpassing the 2007-08 peak levels.
This seems achievable at the current quarterly lease run rate. While supply
pipeline for 2011 is considerable at 61msf and is likely to keep the vacancy
levels high (>20%); we believe that completions may start getting deferred
given current tight funding environment. Rentals have started to increase in key
cities in 1Q. Going into CY11, JLL expects Bangalore and Hyderabad to
outperform primarily due to high pre leasing and affordable rents.
Retail absorption gaining momentum- 2010 marked the beginning of a
meaningful recovery in the retail segment with retailers resuming back their
expansion plans. JLL expects the absorption to strengthen further in 2011 to
almost 12msf above the peak level of 9.6msf seen in CY07. Regarding supply
we note that CY10 witnessed <40% of initial supply estimates coming onstream thereby resulting in a healthy demand supply balance. As per C&W, only
half of CY11 supply projections (19msf) may actually materialize.
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