Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Property
India
Sticking with quality. We see a possible reversal of the interest rate trajectory in
1QFY13E aiding demand revival for the sector, for now though, launches and
absorption continue to remain weak – declining 42% and 22% in June 2011 versus
average of past 12-months. While keep our target prices unchanged, we are upgrading
DLF, HDIL and MLIFE to BUY (from ADD earlier) noting the 30-42% upside available in
these stocks. Our top picks are (1) Sobha (BUY, TP Rs370) – Bengaluru residential, (2)
Oberoi (BUY, TP Rs315) – visible NAV and net cash and (3) Phoenix (BUY, TP Rs300) –
three mall openings in FY2012E are potential triggers.
Signs of weakness continue but not bottomed out as yet
We see definite signs of weakness (1) launches in June 2011 were 42% lower than average of the
previous 12 months average and there are no indicators of any significant upturn after that, (2)
sales were down 22% in June 2011 and (3) there is anecdotal evidence that developers are
focusing on “affordability” once again through marginal discounts, easier payment terms or lower
specs (size or quality of amenities). However, we do not find enough evidence to believe that this
is the bottom as (1) inventory levels have not moved up significantly, (2) developers have not yet
stopped launching new projects (without meaningful price reductions) or evaluating land-buying
proposals and (3) loans to the housing sector are still growing 15% yoy.
Demand upturn is contingent on interest rate trajectory and price declines
We believe that demand upturn versus the abatement of cost pressures or even debt reduction
(through asset sales) is the real turning point for the sector. However, we do not expect a nearterm
respite in the interest rate trajectory (repo rate hiked by an aggressive 50 bps in July 2011
and we expect another 25 bps in Sept. 2011) though we expect it to reverse from 1QFY13E. We
expect the reversal to be gradual, depending on inflation at that point in time. On pricing declines
driving affordability, we would await evidence of developers willing to do so before turning
positive on the demand trajectory.
Stock prices have corrected to reflect the cycle turn and company specific issues
Sector index (BSE Real Estate index) is down 47% over the past 12 months, significantly
underperforming the broader benchmark BSE Sensex by 41% over this period and individual
stocks are down in a range of 12-87%. This has been led by (1) a tightening interest rate regime
(RBI has raised interest rates 11 times since March 2010) which has impacted demand, debt costs
as well as sentiment, (2) other macro issues (land row in NOIDA, CCI penalty versus DLF, changes
in Mumbai regulations) and also (3) company specific issues (Unitech).
Stick to quality – Sobha, Oberoi and Phoenix Mills are our top picks
Our coverage universe is now trading below FY2012E book value (at 0.9X FY2012E P/BV) and we
upgrade three stocks in the sector (DLF, HDIL, MLIFE) to BUY from ADD given the 30-42% upside
to our target NAVs for these stocks and upgrade PVKP to ADD (from REDUCE earlier) with a 18%
upside. Oberoi, Phoenix and Sobha remain our top picks as we believe they are relatively insulated
(Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and have potential upside
triggers (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in FY2012E and
Sobha – launch of large projects in Bengaluru and Gurgaon).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Property
India
Sticking with quality. We see a possible reversal of the interest rate trajectory in
1QFY13E aiding demand revival for the sector, for now though, launches and
absorption continue to remain weak – declining 42% and 22% in June 2011 versus
average of past 12-months. While keep our target prices unchanged, we are upgrading
DLF, HDIL and MLIFE to BUY (from ADD earlier) noting the 30-42% upside available in
these stocks. Our top picks are (1) Sobha (BUY, TP Rs370) – Bengaluru residential, (2)
Oberoi (BUY, TP Rs315) – visible NAV and net cash and (3) Phoenix (BUY, TP Rs300) –
three mall openings in FY2012E are potential triggers.
Signs of weakness continue but not bottomed out as yet
We see definite signs of weakness (1) launches in June 2011 were 42% lower than average of the
previous 12 months average and there are no indicators of any significant upturn after that, (2)
sales were down 22% in June 2011 and (3) there is anecdotal evidence that developers are
focusing on “affordability” once again through marginal discounts, easier payment terms or lower
specs (size or quality of amenities). However, we do not find enough evidence to believe that this
is the bottom as (1) inventory levels have not moved up significantly, (2) developers have not yet
stopped launching new projects (without meaningful price reductions) or evaluating land-buying
proposals and (3) loans to the housing sector are still growing 15% yoy.
Demand upturn is contingent on interest rate trajectory and price declines
We believe that demand upturn versus the abatement of cost pressures or even debt reduction
(through asset sales) is the real turning point for the sector. However, we do not expect a nearterm
respite in the interest rate trajectory (repo rate hiked by an aggressive 50 bps in July 2011
and we expect another 25 bps in Sept. 2011) though we expect it to reverse from 1QFY13E. We
expect the reversal to be gradual, depending on inflation at that point in time. On pricing declines
driving affordability, we would await evidence of developers willing to do so before turning
positive on the demand trajectory.
Stock prices have corrected to reflect the cycle turn and company specific issues
Sector index (BSE Real Estate index) is down 47% over the past 12 months, significantly
underperforming the broader benchmark BSE Sensex by 41% over this period and individual
stocks are down in a range of 12-87%. This has been led by (1) a tightening interest rate regime
(RBI has raised interest rates 11 times since March 2010) which has impacted demand, debt costs
as well as sentiment, (2) other macro issues (land row in NOIDA, CCI penalty versus DLF, changes
in Mumbai regulations) and also (3) company specific issues (Unitech).
Stick to quality – Sobha, Oberoi and Phoenix Mills are our top picks
Our coverage universe is now trading below FY2012E book value (at 0.9X FY2012E P/BV) and we
upgrade three stocks in the sector (DLF, HDIL, MLIFE) to BUY from ADD given the 30-42% upside
to our target NAVs for these stocks and upgrade PVKP to ADD (from REDUCE earlier) with a 18%
upside. Oberoi, Phoenix and Sobha remain our top picks as we believe they are relatively insulated
(Oberoi – net cash, Phoenix – retail, Sobha – Bengaluru residential) and have potential upside
triggers (Oberoi – NAV accretive land purchases, Phoenix – three mall openings in FY2012E and
Sobha – launch of large projects in Bengaluru and Gurgaon).
No comments:
Post a Comment