Hold Prestige Estates; accumulate Sobha Developers: Emkay

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Hold Prestige Estates; accumulate Sobha Developers: Emkay

Emkay Global Financial Services has come out with its report on Bangalore Real Estate. The research firm has initiated coverage on Prestige Estates Projects with a hold rating and a target price of Rs 81 and accumulate rating on Sobha Developers with a target price of Rs 272, in its January 14, 2012 research report.

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Emkay Global Financial Services has come out with its report on Bangalore Real Estate. The research firm has initiated coverage on Prestige Estates Projects with a hold rating and a target price of Rs 81 and accumulate rating on Sobha Developers with a target price of Rs 272, in its January 14, 2012 research report.

"Expect positive demand in Bangalore housing market given the uptick in key determinants of property buying - affordability quotient and promising job environment. We are equally positive on the office space segment of the city's real estate, but are negatively biased on the retail and hospitality segment owing to oversupply scenario. Concerns: High inventory scenario on continuation of aggressive residential launches leading to lower net cash generation for the developers."

"Bangalore witnessed new launches of 31 msf in Q2FY12, which is more than launches made in the city over the last 3 quarters. Post-crisis, most of the developers had refrained from new launches with focus on clearing their unsold inventory and delivering the under construction projects. With majority of the projects launched in 2008-09 period nearing completion, most of the developers have gone for aggressive launches. If this aggression is not followed by absorption, the city will be left with very high inventory. At the current sales booking run rate (Q2FY12), the city's unsold inventory of more than 9 quarters is comfortable."

"SDL and PEPL operate in same business environment with both commanding strong brand equity in Bangalore city. While SDL is a pure residential development play, PEPL has its forte in development of commercial assets viz office, retail & hospitality. Considering the current macro environment with headwinds , we prefer the former's model over the latter, for its ability to generate positive cashflows . SDL's strong brand in the residential segment and good location of its on-going projects mitigates the risk of slowdown. We believe SDL's debt will not rise from here on, even with 30% fall in the volume run rate in FY13E over FY12E. PEPL would require working capital to fund its near term growth in the Asset Sale segment and long term capital to fund its capex for developing Leaseable properties . We believe the working capital cycle to turn in FY13E which will meet its capital requirement for capex. We initiate coverage on Prestige Estates with a HOLD rating and a target price of Rs 81 and have a Accumulate rating on Sobha Developers with a target price of Rs 272," says Emkay Global Financial Services research report.

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To read the full report click on the attachment