Bank Of America Initiates Coverage On Four Indian Real Estate Firms

Bank of America Meryll Lynch initiated coverage on four real estate companies: DLF Ltd., Godrej Properties Ltd., Prestige Estate Projects Ltd., and Oberoi Realty Ltd.

Godrej Properties and Prestige were rated new ‘Buy’ anticipating a rise in earnings per share on the back of strong brand presence and upcoming launches in the current financial year, according to the broking firm’s note.

Here’s what Bank of America had to say on these four real estate firms:

DLF

• DLF Ltd. initiated at ‘Underperform’ with a price target of Rs 163
• Upside Risk: Pickup in sales of premium category in Gurugram
• Expect DLF to report 6 percent profit decline in financial year 2018
• Sales expected to remain weak over FY17-FY20 as DLF plans to sell apartments only after obtaining occupancy certificates
• Sales also remain low due to high exposure to premium units in slow-moving end-markets
• DLF's upcoming projects will not be under the ambit of the Real Estate Regulation (and Development) Act (RERA)
• Valuations at 1.3 times the expected price to book ratio of FY19 look expensive for 3 percent return on equity/sales for the same period

Prestige Estate

• Prestige Estate Projects Ltd. initiated at ‘Buy’ with the highest price target in the street- Rs 334; implying 22 percent upside
• Key risk - slowdown in emerging non-IT sectors of Bangalore.
• Rental income to double in 4 years
• 11.8mn sq. ft. of new residential launches in FY18/FY19 targeting the mid-segment as compared to nil launches in the last four quarters
• Expecting 40 percent compounded annual growth rate in earnings per share during FY17-19 and a 10 percent rise in return on equity in FY19
• Despite demonetisation and RERA, Prestige's inventory declined to 11.8 million sq.ft., as on the first quarter of the current fiscal, owing to (1) 32 percent sales in FY16 and 28 percent in FY17 and (2) 1.4 million sq. ft. launches in the last 15 months

Oberoi Realty

• Oberoi Realty Ltd. initiated at 'Neutral'' with a target price of Rs 432
• Potential catalyst: Launch of new phase at its Borivali and Mulund projects in Mumbai
• Risk: Continued slowdown in premium category sales in Mumbai.
• Revenue recognition of the projects launched in FY15-16 should lead to 77 percent compounded annual growth rate in earnings per share during FY17-FY19
• Sales rate will remain weak given 100 percent premium product portfolio

Godrej Properties

• Godrej Properties Ltd. initiated at 'Buy' with a price target of Rs 756; 26 percent upside potential
• Strong pan-India brand and asset light model makes Godrej Properties best placed to benefit from consolidation through its JV model
• Godrej Properties, best placed in their competitive framework, has an unmatched ability to sell houses
• Brand presence and robust sales from upcoming launches is expected to lead to a 44 percent compounded annual growth rate in earnings per share during FY17-FY20
• Expecting a 907 basis points rise in return on equity to 20 percent in FY20