2 realty stocks that could give decent returns

CLSA said the decline in shares of property developers means some are good buying opportunities. The brokerage is bullish on stocks, which offer ‘visible value’ compared to current prices. Oberoi Realty and Prestige Estates are among its top picks as these companies have managed to raise cash or tied-up with investors, thereby de-risking their growth.

“The property sector had anyway been facing tighter liquidity post-RERA, and further liquidity tightening will only improve market shares of the leading developers,” CLSA said in a note.

Shares of property stocks have fallen roughly 30 per cent so far in 2018 as concerns over higher interest rates, accounting changes and, lately, liquidity issues of lenders weighed down sentiment.


“The impact of a 100bp hike in interest rate ranges between 8 per cent and 13 per cent for developer valuations. However, with stocks being down about 30 per cent from their 2018 peak levels, the rate hike concerns seem to be well factored in,” the brokerage said.

Top on Buy List

Oberoi Realty
CMP: Rs 418.75

SHARE PERFORMANCE: CLSA said the stock is trading at a 29 per cent discount to its one-year estimated NAV per share of Rs 591 versus its average long-term discount of 17 per cent. The brokerage said Oberoi had raised Rs 1,200 crore in equity in 1QFY19, which has not been deployed yet, while its net debt is Rs 400 crore.

Prestige Estates
CMP: Rs 219

SHARE PERFORMANCE: Prestige has an Enterprise Value (EV) of roughly Rs 15,400 crore, 66 per cent of which is explained by its operationalised one-year forward lease rental portfolio valued at a 9 per cent cap rate, said CLSA. The company’s residential business, land, unbuilt projects are valued at roughly Rs 4,000 crore. A residential JV deal with a private equity (PE) partner should operationalise in 2HFY19 while an office JV is on the way.