9 stocks to buy from real estate post crash

PINC Research has come out with a report on India Real Estate sector with 9 stocks recommended.

Real Estate - Time for bottom fishing

The BSE Realty Index has underperformed broader indices by 47% LTM and 41% since April ’10. We believe that the broader macro economic factors such as high inflation, high asset prices and liquidity concern, will make the going tough for the sector in first 6 to 7 months of CY11. We have a long-term positive view on the sector as valuations at present look attractive. We recommend selective buying in the sector on the following factors:

• Execution capability and cash flow generation.
• Higher avg NAV discount of 45% v/s 20% a year back.
• Business restructuring & strategic investments for growth.

Residential Sector View: We expect property prices to correct by 10-15% in coming 6-7 months (for new launches & projects where sales<50%) beyond which we foresee an improvement in absorption and affordability (assuming an annual salary growth of 10%+ in Q1FY12). We believe that further monetary tightening measures within next 6 months may exert more pressure on volumes leading to correction in property prices, which will be healthy for the sector.
 
Commercial Space View: We are positive on commercial space. We expect 20%+ CAGR in IT employee’s net addition for the next two years on account of higher office space demand. We have noticed an increase in absorption and marginal improvement in rentals in H2FY11 despite the higher inventory in the commercial space due to:

• Growth in employment levels (IT, BFSI) due to better corporate earnings following strong economic recovery.
• Focus of developers on ongoing projects instead of new launches which has led to new supply deferment.

Outlook and Recommendation: Following recent declines, sector valuation looks attractive. We are positively biased towards the sector as we see inflation cooling off from H2CY11. We like DLF (launch plan and reducing D/E) & HDIL (turning to be a key residential player in Mumbai) in large caps and Phoenix Mills & Godrej Properties in mid-cap space. Unitech can surprise on execution front and by listing Unitech Infra (Apr-May’11). However, it is not amongst our favourites for the moment. Amongst midcaps, Phoenix Mills is an interesting play due to improved consumer spending, and Godrej Properties, which has 50% of its land bank in Gujarat, will be a clear winner in the long run with the Gujarat economy showing better growth than most other states.

ANANT RAJ INDUSTRIES : We initiate coverage with a BUY recommendation and a target price of Rs 130 after giving 20% discount to NAV since the stock looks attractive from a valuation perspective. However, we will witness an upside movement only after the company’s residential launches.

DLF : We initiate coverage with a BUY rating on the stock and a TP of Rs 335, 20% discount to NAV. Key risks to our valuation are delay in launches, economic slowdown and rising inflation.

GODREJ PROPERTIES  (GPL) : We initiate coverage on GPL with a ‘BUY’ rating and a TP of Rs 830 after assigning a 50% discount to the Vikhroli land bank (not a part of the total land development plan) and to MoUs (185 acres).

HOUSING DEVELOPMENT & INFRASTRUCTURE  (HDIL): We initiate coverage with a BUY rating on the stock and a TP of Rs 225 after 20% discount to NAV.
 
ORBIT CORPORATION : We initiate coverage with a HOLD rating on the stock and a TP of Rs65 after 20% discount to NAV. We might re-rate ORB upwards on a positive outcome of ORB’s South Mumbai redevelopment portfolio with its saleable area expected to rise to ~1msf from (i) Full acquisition of 4 buildings at the NS redevelopment block (ii) A new NS redevelopment project bagged in Q4FY10 (pending for approval till the next 18-24 months) and (iii) The already-launched Orbit Haven and Villa Orb Annex projects in the NS block. We have not considered the latest Malabar Hill project in our valuations and have built in only 50% of the partly acquired NS block.

PENINSULA LAND : We initiate with a SELL recommendation and a target price of Rs 65 after assigning 20% discount to NAV.

PHOENIX MILLS : We initiate coverage with a BUY on the stock and a target price of Rs 240 after assigning a 20% discount to NAV.

PURAVANKARA PROJECTS : We initiate coverage with a BUY on the stock and a TP of Rs 155

UNITECH : We initiate coverage with a BUY rating on the stock and a TP of Rs 55 after giving 20% discount to NAV.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.