Mar 07, 2013, 03.38 PM IST
The broking firm is bullish on Prestige Estates, Sobha Developers and DLF. According to Desai, these companies have seen good amount of pre-sales for their new projects over the last six-nine months and the cash generated will start reflecting in their books going forward.
In an interview to CNBC-TV18 Param Desai of Nirmal Bang shared outlook on the Indian realty sector and various real estate stocks. As far as the residential property is concerned, there is pent-up demand on a pan India basis from good brands. On the other hand, commercial retail market continues to remain lackluster, he said in an interview to CNBC-TV18.
The broking firm is bullish on Prestige Estates , Sobha Developers and DLF . According to Desai, these companies have seen good amount of pre-sales for their new projects over the last six-nine months and the cash generated will start reflecting in their books going forward.
"There is still enough headroom for the stock prices to go up in these three counters. On Prestige our price target is around Rs 210, for Sobha it is around Rs 513 and for DLF it is Rs 296," he added.
Below is the edited transcript of Param Desai’s interview with CNBC-TV18
Q: What are your first thoughts on DLF? How do you expect the upcoming share issue to go through for DLF?
A: In case of DLF aside from last three months they were focusing more on the plotted sales just to ensure better working capital management, but that was not helping to solve cash flow concerns. On the other hand, the non-core asset sales were going through, but the quantum was not big enough.
In the last three months, sale of three big ticket asset sales is likely to reduce the net debt by around Rs 50 billion that is the first move in the right direction fundamentally. Secondly, the management is renewing focus on the high value new projects in Gurgaon phase 5 which is likely to kick in from the next seven months. That would have substantial value to the cash flow and with this offer for sale (OFS) going through that will bring around Rs 20 billion.
Overall we are expecting net debt to equity to come down from 0.76 times from current level to 0.6 times. Fundamentally also we believe FY14 should be the first year where the company is likely to report free cash flow positive after a gap of four years. Structurally there has been change in case of DLF and the worst is behind for DLF.
Q: There was talk in the investor conference of DLF saying they will bring their debt down to Rs 15,000 crore. Aren’t they standing at about Rs 21,000 crore? What more do they have to sell actually?
A: Yes, their current net debt is about Rs 21,000 crore so if one knockoff Aman Resorts which is not yet flown in the balance sheet, it will bring another Rs 1,600 crore of cash. Their wind business will bring about Rs 900 crore of cash and OFS will bring around Rs 2,000 crore cash. All this will bring down their net debt to around Rs 168 billion.
Then they have support of high value new launches in phase 5 that is 1.5-2 million square feet which is in the range of more than Rs 20,000 per sq ft as selling price. Overall the mixture of both noncore asset sales and high value new launches should bring down the next debt to around Rs 16,000-17,000 crore over the next one year.
Markets face resistance; Nifty likely to correct soon
After expansion comes contraction - this is the theme which the stock markets have begun to work on. This letter has been upbeat on the market. We still are, when it comes to the long term. The short term scenario may be different. For short term traders the strategy should be to take swing trades lasting one or two days, only on extremes.
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