We maintain our overweight stance (upgraded on Feb 27, 2012) on improving sector profitability, stabilized debt and better volumes - as (1) we expect positive trends to sustain on robust demand in most cities; (2) see continued strength in underlying demand in Mumbai; and (3) pick up in approvals process. Further, exposure of the banking sector to retail home loans has reached an 8-year low, which lessens potential concerns of a credit-led bubble in real estate, while providing headroom for future growth. DLF has surprised positively in the quarter with improved operations and renewed focus on execution and asset monetization. Consequently, we have upgraded DLF to ‘BUY/SP’. Along with DLF, Jaypee Infratech (JPIN) is our top pick in the sector.
��
Volumes robust, led by NCR and Chennai
Sales volumes was robust across most micro markets (ex-Hyderabad), led by NCR and Chennai. Pune volumes reported a rise, while those in Mumbai remained sluggish (flat YoY, up 20% QoQ). DLF, with robust volumes of 6.7msf this quarter, accounted for 42% volumes of listed real estate companies (sample of 11 companies). Ex-DLF the sector has recorded healthy growth rate of 11% YoY (-4% QoQ).
Debt levels ease marginally
Aggregate net debt of 11 companies (ex-JPIN, OBER) declined marginally to INR414bn against INR417bn at end of Q3FY12, driven by reduction in debt by Sobha and by GPL (funded by equity issuance). Including JPIN, debt stands at INR489bn, up ~2% QoQ and 14% YoY. Reflecting stabilized debt of companies, bank debt reported to RBI has also increased marginally (up 2% QoQ).
Outlook: Improving sector fundamentals; maintain ‘Overweight’
Improving volumes due to robust demand in most cities, continued strength in underlying demand in Mumbai and pick up in approvals process underpin our affirmation of positive sector stance (upgraded from underweight; refer report, ‘Real Estate: Better times ahead’, dated Feb 27, 2012). Further, exposure of the banking sector to retail home loans has reached an 8-year low, which lessens potential concerns of a credit-led bubble in real estate, while also providing headroom for future growth. We believe that the current improving environment presents a lucrative opportunity for debt-laden companies to monetize their assets and deleverage balance sheets. DLF has demonstrated continued improvement in operations and greater focus on execution and debt deleveraging. This, along with attractive valuations, drives our upgrade on the stock to a ‘BUY’. JPIN has turned in a stellar performance in its real estate business, with strong volumes and cash flows. With its attractive valuations, along with commencement of the Yamuna Expressway (YE, a key trigger), JPIN is our top pick in the sector, along with DLF.
Regards,
No comments:
Post a Comment