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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fundamentals remain challenging as sales volumes continue to decline on weak affordability
as seen in sector underperformance. We expect a gradual recovery on price cuts, peaking
rates, policy reforms and sector deleveraging as we remain sanguine about India's long-term
structural growth story. Top pick DLF.
While fundamentals remain challenging, in our view…
The real estate sector has been a laggard (down 17% vs the Sensex since January and 34%
in the last 12 months). Sales volumes in Indian real estate markets continue to decline due to
weak affordability on account of high property prices and high mortgage and inflation rates.
The Prop Equity database (covering the primary and secondary markets) shows sales
volumes data for June remained weak, with some improvement in July – Gurgaon up 23%
yoy and Bangalore up 34% yoy – due to significant launches. On the supply side, developers
are caught up with high debt and low asset churn, which continue to reduce their return on
equity. Banks’ exposure to developers has remained largely flat since April, partly reflecting
the banking sector’s cautious stance on real estate.
We expect gradual recovery on price cuts, rates peaking and proposed policy reforms
We believe banks may require developers to cut property prices (if they don’t on their own) to
rekindle sales volume during the upcoming festival season (Oct-Dec 2011) as buyers have
been delaying purchases in anticipation of price corrections. RBS Economist Sanjay Mathur
believes interest rates have peaked and will ease from March 2012 on. While proposed
policy reforms (land bill, floor space index (FSI), government approval for the sale of special
economic zones (SEZs) could take time because of various ambiguities, we believe that these
are steps in the right direction and bring sector transparency and faster execution. These coupled
with developers’ measures to deleverage via non-core asset sales could lead to a gradual
recovery as we remain sanguine about India’s long-term structural growth story. Moreover, our
Indian IT analyst expects the top 4 Indian IT companies to increase their employee strength by
around 15% in FY12 alongside wage inflation. This is important as the IT sector is one of the
country’s biggest consumers of real estate.
DLF our top pick; we upgrade Unitech to Hold
We make DLF our top pick given the visibility of Rs30bn of asset monetisation to reduce its high
debt, the biggest overhang on the stock. We upgrade Unitech to Hold on its significant
underperformance (38% ytd). While we believe headwinds remain for Mumbai-based developers
in the near term due to ongoing policy uncertainty, leading to project delays, we maintain Buys on
HDIL and Indiabulls Real Estate (and reduce our TPs).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Fundamentals remain challenging as sales volumes continue to decline on weak affordability
as seen in sector underperformance. We expect a gradual recovery on price cuts, peaking
rates, policy reforms and sector deleveraging as we remain sanguine about India's long-term
structural growth story. Top pick DLF.
While fundamentals remain challenging, in our view…
The real estate sector has been a laggard (down 17% vs the Sensex since January and 34%
in the last 12 months). Sales volumes in Indian real estate markets continue to decline due to
weak affordability on account of high property prices and high mortgage and inflation rates.
The Prop Equity database (covering the primary and secondary markets) shows sales
volumes data for June remained weak, with some improvement in July – Gurgaon up 23%
yoy and Bangalore up 34% yoy – due to significant launches. On the supply side, developers
are caught up with high debt and low asset churn, which continue to reduce their return on
equity. Banks’ exposure to developers has remained largely flat since April, partly reflecting
the banking sector’s cautious stance on real estate.
We expect gradual recovery on price cuts, rates peaking and proposed policy reforms
We believe banks may require developers to cut property prices (if they don’t on their own) to
rekindle sales volume during the upcoming festival season (Oct-Dec 2011) as buyers have
been delaying purchases in anticipation of price corrections. RBS Economist Sanjay Mathur
believes interest rates have peaked and will ease from March 2012 on. While proposed
policy reforms (land bill, floor space index (FSI), government approval for the sale of special
economic zones (SEZs) could take time because of various ambiguities, we believe that these
are steps in the right direction and bring sector transparency and faster execution. These coupled
with developers’ measures to deleverage via non-core asset sales could lead to a gradual
recovery as we remain sanguine about India’s long-term structural growth story. Moreover, our
Indian IT analyst expects the top 4 Indian IT companies to increase their employee strength by
around 15% in FY12 alongside wage inflation. This is important as the IT sector is one of the
country’s biggest consumers of real estate.
DLF our top pick; we upgrade Unitech to Hold
We make DLF our top pick given the visibility of Rs30bn of asset monetisation to reduce its high
debt, the biggest overhang on the stock. We upgrade Unitech to Hold on its significant
underperformance (38% ytd). While we believe headwinds remain for Mumbai-based developers
in the near term due to ongoing policy uncertainty, leading to project delays, we maintain Buys on
HDIL and Indiabulls Real Estate (and reduce our TPs).
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