Real estate sector: Which stocks should you own?

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Real estate sector: Which stocks should you own?

Investor interest seems to be coming back into the realty space. In an exclusive interview with CNBC-TV18, Aashiesh Agarwaal, VP-Research, Edelweiss Securities and Param Desai, Research Analyst, Angel Broking, give their top picks.

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Investor interest seems to be coming back into the realty space. In an exclusive interview with CNBC-TV18, Aashiesh Agarwaal, VP-Research, Edelweiss Securities and Param Desai, Research Analyst, Angel Broking, speak about their preferred stock picks.

The two have an overweight stance on the sector and like Unitech  and Anant Raj  in the largecap and midcap space respectively. However Agarwaal likes DLF  as well as  Orbit Corporation  too.

The risk-reward ratio has turned favorable towards real estate sector, Desai says.

Below is a verbatim transcript of the exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: As a house do you have a buy on realty and which are the most attractive stocks for you?

Agarwaal: We have an overweight stance on the real estate sector. Among the real estate sector, we prefer Unitech and DLF. DLF is a preferred stock as a largecap. Among the smaller names, we like Anant Raj and Orbit Corporation.

Q: Any price targets you may have for Unitech?

Agarwaal: Unitech our fair value estimate for Unitech is Rs 106 per share. The stock is right now about Rs 85- Rs 86, so that's about 25% upside from the current levels. So, we find Unitech also very attractive. But DLF has a larger discount to net asset value (NAV) as we speak, so we have outperformance of DLF over Unitech in the near to medium term. 

Q: While investor interest has definitely returned to the realty space off late, have things changed on the ground itself to warrant the movement that we are seeing in the stock price? We have seen some deals, which have seen some huge prices paid, by Indiabulls realty regarding the NTC mills the prices they paid or even Godrej Property or DB realty. Fundamentally, what's the change you are seeing in the past three months?

Desai: The risk-reward ratio has turned favorable towards this sector primarily because we are witnessing more broader recovery in the residential segment from Tier 1 to Tier 2 and Tier 3 cities, which was not happening five-six months back, whereas the leasing enquiries has now turned into transactions in specific series like Mumbai and Gurgaon. Having said that, the key focus going forward will be on the successful new launches and the recovery in the non residential segment across the market.

Q: So in that case what are your pockets of preference, would you prefer the Bombay realty space? Which are the stocks you like?

Desai: In the largecap, we like Unitech, in the midcap, we prefer Anant Raj. Why Anant Raj? Basically, the cost of acquisition, land acquisition cost at Rs 300 per square feet, they are trading at substantial discount to their NAV. The residential projects have now been launched and 100% launch has been taken place.

Whereas, in Unitech, they have been able to sold around 60 million square feet much higher than any other developer in FY10 and we expect the volume to remain stable over the next year. We expect a ramp up in execution to happen in Unitech going from 7 million square feet to 9 to 10 million square feet. So, we like these two stocks.