Indian realty sector continues to be under pressure due to high interest rates. But, firms with less debt, such as Prestige Estates, should do well in the long run.
After being one of the favourites of the 2003-08 bull market rally, the real estate sector is being cold-shouldered by investors now. Investor apathy has been triggered mostly by shaky fundamentals and questionable management practices by several leading real estate companies.
However, analysts have slowly started seeing value in the sector mostly because of the massive crash in share prices during the past few years and have started recommending select real estate stocks.
This is why Prestige Estates Projects, an established real estate developer in South India, has been able to show maximum increase in consensus analyst rating during the past one month.
Analysts turned bullish on the company, which came out with an IPO (Initial Public Offering) in October 2010 at a price band between Rs.172 and Rs.183 and allotted shares at Rs. 183, only after its share price slid to a low of Rs. 85 recently.
Low Debt/ Equity Ratio:
The fall in share price is just one of the reasons for investing in Prestige Estates. While the series of interest rate hikes by the RBI has reduced the overall real estate demand, banks are reluctant to lend to this sector, which has created serious funding problems for most companies. As this strain on their balance sheet is expected to increase in the coming quarters, analysts are now concentrating on stocks with low debt on their books. Prestige Estates, with a debt equity ratio of only 0.5 times, is on a strong wicket in this regard. Further, close to half of its 1,250 crore debt is by way of rental discounting and the same will be repaid when these rentals are received.
Joint Development Model:
Prestige Estates follows the JDA (Joint Development Agreement ) model. The JDA with local land owners helps it to acquire prime land banks without resorting to capital-intensive land purchases. For example, about 65% of its ongoing and forthcoming projects spread across around 1,000 acres in areas such as Bangalore, Mysore, Cochin, Hyderabad, Mangalore, Chennai and Goa are under this model. The JDA model offers superior capital usage and thereby, helps it to maintain better cash flows. This will also mitigate the possible uncertainty triggered by the fall in land prices.
South Indian Proxy:
As Prestige Estates has a strong brand equity in southern India, notably in Bangalore, it can also be a very good proxy for the fast growing real estate market there. While the pricing pressure has already started showing up in major cities such as Mumbai and Delhi, the southern market is relatively stable, mostly because of the strong housing/ commercial leasing demand triggered by the continued growth of IT companies.
Selection Methodology:
Pick up the stock that has shown the maximum increase in ‘consensus rating’ by analysts in the past one month. It is arrived at by averaging all analyst recommendations after attributing weightages to each of them 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell.
An improvement in consensus rating indicates that analysts are turning bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks that have been covered by at least 10 analysts.
- Review by Narendra Nathan, ET
However, analysts have slowly started seeing value in the sector mostly because of the massive crash in share prices during the past few years and have started recommending select real estate stocks.
This is why Prestige Estates Projects, an established real estate developer in South India, has been able to show maximum increase in consensus analyst rating during the past one month.
Analysts turned bullish on the company, which came out with an IPO (Initial Public Offering) in October 2010 at a price band between Rs.172 and Rs.183 and allotted shares at Rs. 183, only after its share price slid to a low of Rs. 85 recently.
Low Debt/ Equity Ratio:
The fall in share price is just one of the reasons for investing in Prestige Estates. While the series of interest rate hikes by the RBI has reduced the overall real estate demand, banks are reluctant to lend to this sector, which has created serious funding problems for most companies. As this strain on their balance sheet is expected to increase in the coming quarters, analysts are now concentrating on stocks with low debt on their books. Prestige Estates, with a debt equity ratio of only 0.5 times, is on a strong wicket in this regard. Further, close to half of its 1,250 crore debt is by way of rental discounting and the same will be repaid when these rentals are received.
Joint Development Model:
Prestige Estates follows the JDA (Joint Development Agreement ) model. The JDA with local land owners helps it to acquire prime land banks without resorting to capital-intensive land purchases. For example, about 65% of its ongoing and forthcoming projects spread across around 1,000 acres in areas such as Bangalore, Mysore, Cochin, Hyderabad, Mangalore, Chennai and Goa are under this model. The JDA model offers superior capital usage and thereby, helps it to maintain better cash flows. This will also mitigate the possible uncertainty triggered by the fall in land prices.
South Indian Proxy:
As Prestige Estates has a strong brand equity in southern India, notably in Bangalore, it can also be a very good proxy for the fast growing real estate market there. While the pricing pressure has already started showing up in major cities such as Mumbai and Delhi, the southern market is relatively stable, mostly because of the strong housing/ commercial leasing demand triggered by the continued growth of IT companies.
Selection Methodology:
Pick up the stock that has shown the maximum increase in ‘consensus rating’ by analysts in the past one month. It is arrived at by averaging all analyst recommendations after attributing weightages to each of them 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell.
An improvement in consensus rating indicates that analysts are turning bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks that have been covered by at least 10 analysts.
- Review by Narendra Nathan, ET
Thanks for sharing this informative blog. You can buy 2 bhk flat in Greater Noida and 3 BHK flats in Greater Noida in Paramount Golfforeste. Developed by the best builders in Greater Noida. Book 3 BHK ready to move flats in Greater Noida. Best property in Greater Noida for investment.
ReplyDelete