Investment view– BSE Realty index has underperformed the broader markets
over the past month despite a pick up in approval/launch activity, improving pre
sales momentum, rate cuts and easing funding environment, given the overhang of
impending cap raise issuances to comply with SEBI norms. Stock performance
has been fairly divergent over last month with IBREL (+50% M/M) & Bangalore
developers (+10-15% M/M) being stand out performers. We continue to
recommend investors buy companies which have finished older deliveries and
have started a fresh cycle of new launches. This would imply improving margins
and cash flows, which were impacted over the last 4 years due to execution
delays, cost inflation and high leverage. Prestige & IBREL fit this framework best
and are our top picks. IBREL offers marquee assets on book, growing rental
stream and improving cash flow profile (on the back of new launches). Prestige, in
our view, is expected to deliver meaningful scale up in cash flows & earnings over
next few Qs, given impressive pre sale performance and growing rental stream.
Residential- Mumbai starts to gain traction: New launch activity across
markets has been fairly high since the beginning of CY13. Project approvals in
Mumbai finally seem to be gaining traction as reflected in the substantial pick
up in new project launches over the last few months. Most of these launches (i.e.
by Shapoorji, L&T, Kalapataru, Lodha) have garnered decent response given
last 2 years’ pent up demand. Gurgaon also witnessed soft launch of a luxury
project in Phase V, while Bangalore and Chennai have maintained their good
run as evident in strong booking trends registered by South based developers.
Prices in Gurgaon/ Bangalore remain firm. Unsold inventory is largely stable as
pick up in new launches has been accompanied by improvement in absorption
trends over the last Q. Deliveries are expected to see significant scale up over
the next few Qs with large project completions across key cities.
Office leasing remains sluggish with Mar-Q absorption coming off by 30%
Q/Q. Supply however has been increasing as projects deferred from last year get
completed. With supply surpassing the demand, vacancy levels increased
marginally over the last Q. Among key markets, Mumbai is witnessing healthy
absorption trends & has seen new project launches. Bangalore however has
started to see moderation after being the standout performer over the last 2
years. Rentals across markets remain largely stable, though we see scope for
appreciation in select markets (Gurgaon, Bangalore) going into FY14.
Retail segment witnessed some moderation in absorption in Mar-Q, after a
buoyant CY12. Lease enquiries remained robust, pointing to an expected pick
up in leasing activity in 2HCY13. New supply has also been fairly constrained.
Vacancy levels across key cities were largely stable with Grade A stock at
negligible vacancy levels; while Grade B peripheral malls witnessed low
occupancy levels. Rentals have started to appreciate and the trend is likely to
continue given limited availability of quality retail space and new international
retailers looking to enter the Indian market.
��
-->
over the past month despite a pick up in approval/launch activity, improving pre
sales momentum, rate cuts and easing funding environment, given the overhang of
impending cap raise issuances to comply with SEBI norms. Stock performance
has been fairly divergent over last month with IBREL (+50% M/M) & Bangalore
developers (+10-15% M/M) being stand out performers. We continue to
recommend investors buy companies which have finished older deliveries and
have started a fresh cycle of new launches. This would imply improving margins
and cash flows, which were impacted over the last 4 years due to execution
delays, cost inflation and high leverage. Prestige & IBREL fit this framework best
and are our top picks. IBREL offers marquee assets on book, growing rental
stream and improving cash flow profile (on the back of new launches). Prestige, in
our view, is expected to deliver meaningful scale up in cash flows & earnings over
next few Qs, given impressive pre sale performance and growing rental stream.
Residential- Mumbai starts to gain traction: New launch activity across
markets has been fairly high since the beginning of CY13. Project approvals in
Mumbai finally seem to be gaining traction as reflected in the substantial pick
up in new project launches over the last few months. Most of these launches (i.e.
by Shapoorji, L&T, Kalapataru, Lodha) have garnered decent response given
last 2 years’ pent up demand. Gurgaon also witnessed soft launch of a luxury
project in Phase V, while Bangalore and Chennai have maintained their good
run as evident in strong booking trends registered by South based developers.
Prices in Gurgaon/ Bangalore remain firm. Unsold inventory is largely stable as
pick up in new launches has been accompanied by improvement in absorption
trends over the last Q. Deliveries are expected to see significant scale up over
the next few Qs with large project completions across key cities.
Office leasing remains sluggish with Mar-Q absorption coming off by 30%
Q/Q. Supply however has been increasing as projects deferred from last year get
completed. With supply surpassing the demand, vacancy levels increased
marginally over the last Q. Among key markets, Mumbai is witnessing healthy
absorption trends & has seen new project launches. Bangalore however has
started to see moderation after being the standout performer over the last 2
years. Rentals across markets remain largely stable, though we see scope for
appreciation in select markets (Gurgaon, Bangalore) going into FY14.
Retail segment witnessed some moderation in absorption in Mar-Q, after a
buoyant CY12. Lease enquiries remained robust, pointing to an expected pick
up in leasing activity in 2HCY13. New supply has also been fairly constrained.
Vacancy levels across key cities were largely stable with Grade A stock at
negligible vacancy levels; while Grade B peripheral malls witnessed low
occupancy levels. Rentals have started to appreciate and the trend is likely to
continue given limited availability of quality retail space and new international
retailers looking to enter the Indian market.
No comments:
Post a Comment