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Investors give realty story the big miss

Wednesday, 23 June 2010 - 2:00am IST | Place: Mumbai | Agency: DNA
Despite realtors’ claims of a revival in the industry and prices in Mumbai, Delhi and Bangalore rocketing to near 2007 highs, investors in real estate stocks don’t seem to be convinced.

Despite realtors’ claims of a revival in the industry and prices in Mumbai, Delhi and Bangalore rocketing to near 2007 highs, investors in real estate stocks don’t seem to be convinced.

The BSE realty index has fallen 17.95% since January 1, 2010 to 3163.55. The market benchmark, the Sensex has gained 1.63% in the period.

A realty analyst, who is not authorised to speak to the media, said, given the current valuations, investors are opting for safer sectors like pharma. “While mutual funds have been underweight on the real estate sector, foreign institutional investors, who have been active in the sector, are now circumspect about it,” the analyst said.
Some of the bigger stocks in the realty space are now quoting way below their listing price. For example, DLF, the biggest realtor of the country by market capitalisation, has fallen 45.2% from its issue price of Rs 525 (on July 5, 2007). The stock closed at Rs 287.85 on Tuesday. Likewise, Puravankara Properties and Housing Development and Infrastructure (HDIL) are quoting 73.9% and 35.9% below their issue price, respectively.

Most of the realty IPO that hit the market this year have also faltered. Godrej Properties, DB Realty, Nitesh Estate and Jaypee Infratech came up with IPOs in 2010. Apart from the Adi Godrej-promoted company, all the new listings are below quoting their issue price. DB Realty, which replaced HDIL as the third-largest company by market capitalisation in the sector, has fallen 18.4% from its issue price of Rs 468.

Among the few stocks that have withstood the realty meltdown is Orbit Corp, which has gained by 134% since its listing in April 2007 at Rs 100 per share.

Among the few stocks that have withstood the realty meltdown is Orbit Corp, which has gained by 134% since its listing in April 2007 at Rs 100 per share.

An analyst with a domestic brokerage tracking the sector said the growth expectations are significantly down now. “DLF was given a price target of Rs 1,000 per share by some brokerages, and now everyone has a target of Rs 300-340. Earlier everyone thought that the developers would grow annually by 15-20%, which now we all realise is not the case. The annual growth has been contracted to some 5%”.   

The analyst added that some of the recent issues came in the middle of the bull run, but now valuations are more rational and there is more clarity going forward. “International investors are wary of realty stocks as they have lost money,” the analyst said.

“Today, realty stocks are priced at discount to even conservative assumptions, but people don’t believe in the realty story,” added another analyst.

While stocks across sectors are mostly valued on the basis of their price to earnings ratios, in real estate, they are valued based on their net asset value — its land bank. After the listing developers heavily leveraged themselves at higher rates.

A host of companies such as Lodha Group, Oberoi Realty, Prestige Group, Emaar MGF and others are planning to tap the markets.

But analysts do not expect very high pricing. Pankaj Jaju, senior vice-president, realty investment banking, Enam Securities, which has the mandate of bringing maximum initial public offerings, said, “We have to wait till the volatility in the market reduces and IPO pricing reflects that because investors are cautious now.”
An official with a listed realtor said, “We have been greedy all along… someone has to pay the price for that… the newer lot will.”




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