Sector Update: Real Estate

Sector Update: Real Estate
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First Published: Mon, Apr 13 2009. 10 15 AM IST

Updated: Mon, Apr 13 2009. 10 15 AM IST
Our channel checks indicate that sales volumes are still down 80-90% y-o-y and property prices continue to drop. Sharp slowdown in the economy and in the IT/ITES sector will maintain weakness in sales volumes and property prices.
Checks have also confirmed that sales volumes continue to be very low; this has maintained pressure on cash flows.
Increase in cancellations (as per reports) has increased the pressure on the already stretched cash flows for all three real estate companies. Recent reports have indicated a sharp rise in cancellations for properties of DLF in Chennai and Gurgaon.
The report suggests that the buyers of properties at both locations are insisting on cancellations of their bookings and refund of their booking amounts.
To raise cash, most companies (including Unitech and DLF) are selling completed / partially constructed hotel properties for the past few months.
However, there has been very limited success in selling these properties. Unitech has been able to sell only one out of six hotel properties it intended to sell in the past few months.
We reiterate SELL on Unitech (target Rs22 downside of 44%) and DLF (target Rs80, downside of 62%), and downgrade HDIL to SELL (target Rs67, downside of 42%).
Our downgrade on HDIL is supported by the company’s weak fundamentals due to deteriorating balance sheet (rising debt equity ratio), increasing pressure on cash flows due to weak sales coupled with falling TDR demand, and probability of higher FSI sales that could drive down NAV.
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First Published: Mon, Apr 13 2009. 10 15 AM IST
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