[T.S.R:16678] India Real Estate-Don't Cry For Them. All NAVs Are A Creation Of Overpayment For Land Banks, Disc to NAV Is A Fiction

India Real Estate-Dont Cry For Them

UBS and Morgan Stanley are pushing for Real Estate stocks just because NAVs of these concerns are now at a discount of 50 per cent. For an illiquid, thinly traded piece of land who actually gets to decide what is the correct NAV and what is artificially created through excessive payment for Land bank. A better yardstick would be inventory with Realtors-if they cannot Sell obviously everything is fudged and will get reflected either on the books of the Realtor or the Bank financing the Land purchase. Banks and Realtors are in big trouble.

 

This is what UBS says-take it with a pinch of salt....

 

The property sector has underperformed the Sensex index by 31% over the past three months due to negative news/events. We believe the market has overreacted as core fundamentals remain intact. With the sector trading at: 1) around a 50% discount to our base NAV (close to peak discounts of 60%); 2) a 15% discount to our bear case NAVs; and 3) 1.7x FY11E P/BV, we believe the worst has been priced in the share prices and that there is value in the Indian property sector. 

How negative sentiment on the property sector can change

We believe sentiments can change if: 1) concerns over rising interest rates and tight liquidity eases with central bank measures; 2) healthy GDP growth drives land/asset prices; 3) residential presale/mortgage growth recovers over the next six months, 4) there is no major fallout from the ongoing fraud investigations; and 5) progress in execution/presales/leasing improves cash flow visibility. 

We lower our price targets, but attractive risk-reward potential remains

We lower our price targets as we ascribe a higher discount of 20%-40% to NAVs (15%-30% previously), factoring in higher risks of slowdown amid weak sentiment, while our NAV estimates remain intact. Despite this, we think there are attractive risk-reward opportunities and potential 30% returns.  

Sector is attractive; valuations outweigh the risks

Though expectations of a muted Q3 may be a near-term overhang, we believe attractive valuations outweigh the risks and see value here. In the current environment, we believe there will be a preference for liquidity and quality stocks, with these being consensus names. We like DLF among the large caps and Phoenix Mills among the mid-caps. However, we think high risk-reward stocks are contrarian names, and like Indiabulls Real Estate and DB Realty in this group.

 

 

 

 

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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