Realty share price target

Top Picks: DLF and Sobha. The NIFTY Realty index has corrected 12.1% over the last 3 months. Weak property buying sentiments, high unsold inventory and paucity of new launches has impacted 2QFY20 pre-sales. As we enter into the festive season, new launches have picked up. We believe that discounts/sales promotion will speed up ready inventory monetization. We remain constructive on volumes with muted expectation on pricing power.

5 September 2019 OBER has completed the Thane land acquisition by paying INR8.9b to GSK for a 60-acre land parcel with development potential of 10-12msf. According to management, 20-25% of the developable area will be allocated for affordable housing (AFH). The first phase of the project is scheduled for launch around Diwali this year (end- Oct) it will more likely be under AFH with a ticket size of INR12-15m. We expect good response to the project based on our catchment analysis (detailed project is likely to be rolled out close to Diwali. We expect Thane and Goregaon launches to substantially boost volumes velocity to ~1.6msf in FY20, double of 0.8msf in the previous year. Oberoi Realty Annuity portfolio revenue increased by a robust 33% to INR3.1b in FY19. Revenue from retail grew backed by renewals while growth in office portfolio increased due to higher occupancy in Commerz II. We expect annuity portfolio CAGR of 47% to INR14.

With a launch pipeline of ~6.4mn sqft in residential segment and ~2.5mn sqft in commercial segment, the company remains well on track to achieve the pre-sales guidance of ~4mn sqft for FY20E. However, the quarter witnessed less than enthusiastic collections (-18% QoQ). Mid-income and affordable segments are expected to drive residential sales with ~80% of BEL's inventory below Rs 10mn ticket size. Despite capex commitment of Rs 13.7bn, pending Rs 24.8bn pre-tax cash flows from real estate projects should suffice. However, timing mismatch could result in further debt drawdown. We maintain NEUTRAL. Key monitorable: Leasing velocity in SEZ projects. We maintain NEU on BEL with SOTP-based TP of Rs 289/sh. 1QFY20 financial performance was below estimate. Strong residential pre-sales momentum and uptick in leasing in two SEZs were key positive.

Change in rating: Due to the recent price performance we downgrade Brigade to NEU from BUY. The NIFTY Realty index has gained 14.9/20.1% over 6M/YTD respectively post the NBFC liquidity crisis easing partially and receiving clarity on GST credit rules. But, the index has remained flat over the last 3 months as concerns remain on burgeoning inventory levels in the system (including slow-moving high-end inventory) and overall funding constraints for developers. We have seen developers increase affordable projects in their overall mix.

We believe the recent influx of orders from Raymond, Oberoi, Raheja demonstrate CIL's growing presence (esp. in Mumbai) at a time when developers are emphasizing on timely completion of projects (post- RERA). While we appreciate its constant endeavor to expand the non-resi portfolio, we continue to closely monitor its projects for any signs of stress (esp. among the non marquee clients). We believe the backlog is healthy and have built in 22% revenue CAGR (FY19-21E). Maintain BUY. We maintain BUY on CIL with a TP of Rs 351/sh. We have cut our FY20/21E EPS by 8.4/6.3% to factor in higher competitive intensity in private residential segment as peers chase quality developers to gain new orders. Rising share of highly competitive government orders will also put pressure on margins

Commercial real estate continues to remain upbeat Net absorption of commercial space in India is expected at ~42.1 million sq ft (msf) exceeding the overall anticipated supply of 34.9 msf in CY18 (gross leasing was clocked at 47.4 msf (5.3% YoY growth) in CY18). Amid strong demand, vacancy levels fell ~810 bps to ~15.0% in CY12-17. It is expected to further decline to 12.0% in CY19E. Higher absorption rates, coupled with declining vacancy rates could drive up rental rates for office spaces, going ahead. In Q1CY19, total gross leasing activity remained strong as it touched...

Embassy Office Parks Real Estate Investment Trust (EOPREIT) is expected to be India's first publicly listed REIT. EOPREIT's portfolio consists of seven Grade A office parks and four prime city-centre office buildings with total area of 32.7 msf, including hotels totalling 1,096 keys and 100 MW solar park, all located in strategic submarkets of key cities in India. The portfolio has 95.0% committed occupancy for its office portfolio, while overall hotel occupancy is at 67.7%. The IPO issue size is | 4,750 crore, which would lead to 20.5% post-IPO equity dilution. The IPO size...

IPO note Embassy Offer Parks REIT Issue Open: Mar 18 - Mar 20, 2019, Price Band: Rs. 299 - 300, Total Issue Size: 15.833cr units, Net Issue Size: 12.91245cr units (Net of Issue to strategic investors of 2.9208cr units)

REITs pool funds from a number of investors and invests them in rentgenerating real estate properties. These are usually commercial properties (offices, shopping centres, etc.) that generate rental income. SEBI requires REITs to distribute a minimum 90% of their income earned to investors on a half-yearly basis. Similarly, 90% of sale proceeds are to be paid out to unit holders, unless the amount is reinvested in another property. Thus, you get to receive regular income and also get to benefit from price appreciation, thereby boosting your returns...

REITs pool funds from a number of investors and invests them in rentgenerating real estate properties. These are usually commercial properties (offices, shopping centres, etc.) that generate rental income. SEBI requires REITs to distribute a minimum 90% of their income earned to investors on a half-yearly basis. Similarly, 90% of sale proceeds are to be paid out to unit holders, unless the amount is reinvested in another property. Thus, you get to receive regular income and also get to benefit from price appreciation, thereby boosting your returns...