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India Equity Research Reports, IPO and Stock News
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Real Estate Developers
Equity Research
Concerns starting to be priced in, valuations present opportunities
Current stock prices factoring in low volumes and low prices
Our India real estate sector trades at a 12-month fwd P/B of 1X, which is
more than 1SD below its mean. Our scenario analysis suggests that current
stock prices are implying price corrections of 20%-25% across verticals in
addition to low volumes. Past trends indicate that prices and volumes are
negatively correlated and we see a volume rebound if prices remain low.
Difficult to estimate the bottom; interest rates, better news flow
Stocks bottomed out in early-2009 as borrowing rates for companies started
to reduce and lower property prices triggered better-than expected sales.
Our Global ECS Research team is not expecting further rate hikes by the RBI
and companies have started giving selective discounts. The current pricing
environment and the demand environment is better than in early-2009.
The sector has been plagued by multiple concerns
The Indian real estate sector has been plagued by multiple concerns: (1)
interest rates have risen by 300+ bp over the past six quarters raising
borrowing costs and lowering end-user affordability; (2) higher commodity
cost of cement and steel, (3) slower approvals, (4) demand volatility due to
macro uncertainty and lower GDP growth, and (5) high inventory in
commercial real estate. In addition various company-specific issues have led
to the sector underperforming broader indices.
Current scenario unlike 2008, when consumer confidence was low
While companies are trading at trough valuations, similar to those seen in
2008, companies currently have better balance sheets and consumer
confidence is higher as evidenced by absorption and mortgage data.
Buy Sobha, DLF, HDIL, Oberoi; Sell Godrej Prop., Phoenix Mills
We rate Sobha, HDIL, Oberoi Realty, and DLF as Buys and Godrej Properties
and Phoenix Mills as Sells. We adjust our FY12-FY14 EPS estimates by -7%
to -19% to factor in slower project execution. We adjust our 12-month target
prices by -10% to -22% following slower project execution and approvals.
Key risks
Key risks include interest rate risk, continued delay in approvals, volatility in
property prices, and rentals.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Real Estate Developers
Equity Research
Concerns starting to be priced in, valuations present opportunities
Current stock prices factoring in low volumes and low prices
Our India real estate sector trades at a 12-month fwd P/B of 1X, which is
more than 1SD below its mean. Our scenario analysis suggests that current
stock prices are implying price corrections of 20%-25% across verticals in
addition to low volumes. Past trends indicate that prices and volumes are
negatively correlated and we see a volume rebound if prices remain low.
Difficult to estimate the bottom; interest rates, better news flow
Stocks bottomed out in early-2009 as borrowing rates for companies started
to reduce and lower property prices triggered better-than expected sales.
Our Global ECS Research team is not expecting further rate hikes by the RBI
and companies have started giving selective discounts. The current pricing
environment and the demand environment is better than in early-2009.
The sector has been plagued by multiple concerns
The Indian real estate sector has been plagued by multiple concerns: (1)
interest rates have risen by 300+ bp over the past six quarters raising
borrowing costs and lowering end-user affordability; (2) higher commodity
cost of cement and steel, (3) slower approvals, (4) demand volatility due to
macro uncertainty and lower GDP growth, and (5) high inventory in
commercial real estate. In addition various company-specific issues have led
to the sector underperforming broader indices.
Current scenario unlike 2008, when consumer confidence was low
While companies are trading at trough valuations, similar to those seen in
2008, companies currently have better balance sheets and consumer
confidence is higher as evidenced by absorption and mortgage data.
Buy Sobha, DLF, HDIL, Oberoi; Sell Godrej Prop., Phoenix Mills
We rate Sobha, HDIL, Oberoi Realty, and DLF as Buys and Godrej Properties
and Phoenix Mills as Sells. We adjust our FY12-FY14 EPS estimates by -7%
to -19% to factor in slower project execution. We adjust our 12-month target
prices by -10% to -22% following slower project execution and approvals.
Key risks
Key risks include interest rate risk, continued delay in approvals, volatility in
property prices, and rentals.
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