Moneycontrol » News » Markets » Expert & FII Outlook

API, Omaxe, Parsvnath valuations not expensive: I-SEC

Published on Thu, Dec 13, 2007 at 11:00 | Source : CNBC-TV18

Updated at Thu, Dec 13, 2007 at 22:10

94588 Investors following DLF. Share this News with them.

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show »

RELATED NEWS

ALSO READ

Nifty

BSE | NSE 31/05/12

Are Mutual Funds betting on Nifty?

Other Stocks in this news

Speaking to CNBC-TV18, Gaurav Pathak , Analyst, I-SEC said that Lanco stock remains his top pick in realty sector and maintains buy on that. Valuations of Ansal Properties , Omaxe and Parsvnath are not expensive he feels. Sobha Developers' fundamentals are good, he said, adding that there, he sees 50% CAGR for 3-4 years.

Pathak estimates that there is likely to be significant rerating in DS Kulkarni . He also warned that there is a need to watch cash flows for large national players like DLF .

Excerpts of CNBC-TV18's exclusive interview with Gaurav Pathak:

Q: Your top pick in the sector is Lanco Infra . Take us through why you like it so much and what kind of price target you have for it?

A: Lanco Infra is basically a play not just on real estate, but on the overall infrastructure basket. The key re-rating that has happened in the stock, essentially the Lanco Hill Project, which has seen tremendous success. The power portfolio has been increasing very strongly. In comparison to most of the other power companies, it is still trading at discounted valuations. The way I look at this company, it's still not reached it's fair value and there is significant upside remaining.

Q: How do you rate prospects from Lanco Hills from here on and what kind of a valuation is Lanco trading at, if you just look at the real estate business?

A: Essentially Lanco Hills is a project which is not there in the Hyderabad market. It's an integrated township where they're developing close to 20 million square feet. Out of that it's going to be high in residential apartments worth 8 million square feet and closely, the remaining would be all commercial lease. So what we are essentially talking about is leases rental, equivalent to Rs 600 crore, coming once these properties are fully developed, so capitalized at 10%, that would be close to Rs 6,000 crore valuations purely from the commercial properties.

The residential is doing quite well and they have recently increased prices by close to 10 to 15%. They are also building a 110 storey tower which we would something that we have not seen in the Indian markets. So, lets see how that pans out.

Overall, the company is also building on other land banks as well. They are getting into JDS in Chennai, developing other properties in Hyderabad, so the real estate in that company is doing quite good.

Q: It is not one of your picks, but do you have a coverage or a call on Ansal Properties?

A: It's not in our coverage but my call in all this Ansal, Omaxe, and Parsvnath is that, they basically were not trading on expensive valuations. Qualitative was more of a concern on these companies rather than quantitative. Right now the market is discounting the risk premiums in these stocks. So, valuation wise they are not that expensive. Qualitative was basically the call where the market right now is discounting the risk premiums.

Overall, I don't think the stocks are expensive.

Q: You like Shobha Developers as well. Do you have a price target on it and why is that your preferred pick?

A: Shobha is one of the best managements that we have in Real Estate. As far as development goes they are doing almost half of what DLF and Unitech are doing, their land bank is almost half of DLF and Unitech. Also, as far as valuation goes, they are way lower than what the larger guys are trading at.

I believe that it's a good fundamental story, earnings are going to grow by 50% CAGR over the next three to four years. Their land bank is good, it's no longer a Bangalore player and now they are almost in all the bigger cities except Mumbai.

Given their backward integrated model, where they are also now getting into other housing related products like mattresses and few others, it's a good, well balanced integrated robust company and the valuations are cheaper than many of the other guys. So we believe that it's a good fundamental pick and our price target remains Rs 1,324 on that stock.

Q: How do you rate some of the regional plays like Kolte Patil, which has listed today and DS Kulkarni which is also a Pune based play?

A: Basically, the call has been that many of these midcap regional guys based in Bangalore, Hyderabad, Pune - the market was not really looking at them earlier. People were more interested in national level players. Now, the interest is again coming back. All of these stocks are trading cheap on NAV as well as PE basis. It was just that they needed a second look and that has started to come now in particular to DSK. They recently had a very good deal with GTC, wherein they are making significant profit on the land deal itself. I believe there could be a significant re-rating in DSK as well.

Q: Where do valuation stand on the national entities? What would you do with a DLF or a Unitech now?

A: All the good things are almost factored into these stocks. So essentially for them to move to the next level, there has to be some very strong news flow in the form huge big deal land bank acquisitions and getting into newer business ventures. If they keep on executing at the level promised, we could still see a significant amount of capital appreciation.

The key call with these companies is going to be the execution delivering that they are talking about and getting into newer ventures. One interesting thing with these largecap national players is going to be the cash flows that they are going to generate '09-'10, which if utilised properly can bring another re-rating in these stocks.

Q:You seem to like Marg Construction as well?

A: It's a decent midcap idea, a play on SEZs, ports and real estate. The company is developing 10 million tonne port in Pondicherry, one of the few port plays available in Indian market right now. It has already got two notified SEZ in Chennai, plus it's doing villa development and mall development. It's a smallcap idea but I believe, going forward, it could get into big-ticket infrastructure projects as well which could see another re-rating in that stock from these levels also.