Even as the stock market enters into new year 2018 and investors maybe on the lookout for top wealth creation opportunity, Mahesh Nandurkar of CLSA says that the firm is bullish on the prospects of housing sector in India. Interestingly, in its latest research report, Edelweiss too has identified housing sector as the theme to bet on in 2018.
According to the research firm, major growth drivers in the space include India’s low per capita consumption of all home building material products; rising GDP, urbanization, disposable income, nuclear families; shortening renovation cycle due to high real estate cost; and virtually untapped but high potential rural market. Edelweiss is bullish on companies into home-building materials, as it expects government thrust on affordable housing combined with low interest rates to bode well for the sector.
“We are actually quite optimistic on the housing side of the equation and we can talk about that later but, on the broader theme for NBFCs, multiples are high and we are quite concerned about the bond yields,” Mahesh Nandurkar of CLSA told ET Now adding, “What we sort of say is that over the last five years, the housing market has not really done anything. Both in volume terms and in value terms, the market has stayed flat and we feel that the housing sector is now at the tipping point and the improvement should be likely going forward because of two factors — the primary factor is the housing affordability measured as mortgaged payments to household income has gone down to an all-time low.” He believes that the government initiatives will spur growth in the sector.
Affordable housing has been an important reform for the Narendra Modi-led government. The newly enacted law Real Estate Regulation Act (RERA) is a case in point. Apart from RERA, Housing for All by 2022’ is a Government of India initiative under which, the erstwhile Indira Awas Yojana was renamed as Pradhan Mantri Awas Yojana Grameen, and another scheme Pradhan Mantri Awas Yojana Urban, was launched in 2015. “We have to keep the momentum going on infrastructure creation, including rural infrastructure. Therein lies the core of India’s future growth story,” Finance Minister Arun jaitley said recently, laying specific emphasis on housing and sanitation.
Edelweiss is bullish on the shares of Century Plyboards from the space. “The company’s capacity augmentation plan included 12% increase in plywood capacity, 50% in laminate capacity and a new 1,98,000CBM MDF plant (largest in the segment by any player) which is envisaged to drive earnings over FY18-20. Most of this capex has been completed, with the entire exercise envisaged to be over by FY18. With ramp up in utilisation over the next 2 years and no firm capex plans on the horizon, we anticipate huge free cash flow generation,” Edelweiss said in its report. The research firm has a target price of Rs 390 on the shares. Century Plyboards (India) were trading at Rs 338.4 on NSE this afternoon.