The realty index remained the only space that didn't suffer any major loss despite the market crumbling this year. Nifty Realty has continued to maintain its pace and is only 16 points away to hit its 52-week high. Stocks inclined towards residential projects have mostly gained this year and have driven sales volume.
ICICI Securities remains positive on the sector and has maintained 'buy' for 5 realty stocks. The brokerage has only reduced the target price of Sunteck Realty and raised the target price of Phoenix Mills.
Sunteck Realty | BUY | Target Price: Rs 487 from Rs 523 earlier
Sunteck Realty’s H1FY20 sales bookings of Rs 2.9 billion have been muted on account of a lack of new launches. However, ICICI Securities expect the sales momentum to pick up in H2FY20 on the back of 3 new launches in Goregaon, Naigaon and Andheri West.
Also, the company has reiterated its intent to create a strong pool of annuity assets over the next 4-5 years by investing Rs 50 billion. The brokerage believes that the stock has a strong brand recall in Mumbai, a strong balance sheet with net debt of 0.2x and a rejigged strategy of advancing monetisation by building annuity assets.
Thus, the brokerage maintained ‘buy’ with a revised TP of Rs 487/share factoring in a longer sales cycle across residential projects in BKC and Goregaon.
Prestige Estates Projects | BUY| Target Price: Rs 363/share
ICICI Securities believes that the company has a significant number of residential launches lined from Q3FY20 in the affordable/mid-income segments which should drive volumes. As of September 2019, Prestige Estates has estimated net cashflows of Rs 75.5 billion from the ongoing projects.
The company’s rental portfolio continues to clock strong performance, as it sees a rise in rental income of Rs 4.3 billion in H1FY20 and is on track to reach Rs 9.5-10 billion of exit rental income by March 2020. Moreover, the company’s hotel properties are generating annualised revenue of Rs 4.1 billion at an EBITDA of 30 percent.
Prestige has a medium-term target of reaching Rs 9.9 bn of office rental income and Rs 4.3 billion of retail rental income by FY22- 23E. Expect it would require incremental capex of Rs 10-15 billion to achieve this for which funding may have to be raised through dilution of stake in existing annuity assets or raising fresh debt, said the brokerage.
The Phoenix Mills | BUY| Target Price: Rs 859 from Rs 841 earlier
In the case of Phoenix Mills, the brokerage believes the company is confident of showing improvement in H2FY20 owing to a strong start to the festive season. In Chennai, Phoenix is rejigging the store mix and is targeting double-digit consumption CAGR over FY19-21E.
"With over 50-60 percent space up for renewal across its key malls at High Street Phoenix and all Market City malls over FY20-FY22E, we expect Phoenix’s rental EBITDA to rise to ~Rs11.5 billion by FY22E from Rs9.5 billion in FY19 which is a CAGR of 7 percent," added the report.
Furthermore, fund infusion by the Canadian Pension Plan Investment Board (CPPIB) of over Rs 16 billion will help the upcoming assets to provide a growth fillip from FY21E onwards, said the brokerage.
Sobha | BUY| Target Price: Rs 516
ICICI Securities sees Bengaluru as the strong market for Sobha due to 75 percent of sales volumes coming in from there. Meanwhile, the company’s other markets continue to clock a relatively stable performance on a QoQ basis, except Gurugram, which saw a sharp decline in volumes.
The brokerage also believes that the company has a healthy pipeline of launches in FY20-21E. In the case of debt, the company’s net debt levels have risen by Rs 5.5 billion in H1FY20 to Rs 29.8 billion (net D/E of 1.3x). To keep debt levels under the sheets, the company is targeting higher annual volumes of 7-8 msf over the medium term.
DLF | BUY| Target Price: Rs 252
DLF’s Q2FY20 performance brings into focus the transformation across its business verticals since FY18 with the residential business continuing to gain traction with net sales bookings of Rs 7.3 billion for the quarter and the rental portfolio continuing to exhibit strong performance, said ICICI Securities.
Another positive according to the brokerage is that the company has fully settled the balance Rs 54 billion of dues outstanding to DCCDL (DLF Cyber City Developers Ltd.) through asset transfers of rental assets and land along with a net cash outgo of Rs 4.8 billion from DLF to DCCDL.The report also believes that the company’s rental arm is on track to reach an exit run rate of Rs 37.5 billion by March 2020.