Worst Is Over For Indian Real Estate Stocks, Says Deutsche Bank

The worst of the policy-specific drags are behind the Indian real estate companies, according to a Deutsche Bank report, which suggests the cyclical momentum is beginning to turn supportive.

The demand-supply dynamics in the commercial segment has improved for developers and a gradual bottoming out is being seen in the residential property market, the lender said in a research note. It said investors are under-pricing the medium to long-term growth opportunities in a more organized and consolidated real estate industry in India.

Also Read: Mumbai Home Prices Drop First Time In A Decade, Says Knight Frank

The lender initiated coverage on Godrej Properties Ltd. and Oberoi Realty Ltd. with a ‘Buy’ rating.

Here what it had to say on the two:

Godrej Properties

• Initiated ‘Buy’ with a target price of Rs 1,000, implying a potential upside of 37.36 percent from current levels.
• Recommendation premised on the company's scalable business model and pan-India brand equity.
• Company best positioned to capitalise on industry consolidation trends.
• Expect company's return on equity to improve from 11 percent in financial year 2016-17 to 17 percent in financial year 2019-20.
• Expect earnings growth momentum to improve in the coming years.

Oberoi Realty

• Initiated ‘Buy’ with a target price of Rs 650, implying a potential upside of 27.46 percent.
• Company to be a prime beneficiary of recent regulatory developments led formalisation and consolidation in the sector.
• Expect company's profit growth momentum to accelerate significantly over FY18-20.