In the hopes of an increase in residential sales, fall in inventory and rise in prices by over 10 per cent over the next two years, brokerage firm Jefferies India favors Indian realty sector
The agency said the top-10 listed companies witnessed a 61 per cent growth in the December quarter, even as the broader market remained 24 per cent below the pre-COVID levels.
In the hopes of an increase in residential sales, fall in inventory and rise in prices by over 10 per cent over the next two years, brokerage firm Jefferies India favors Indian realty sector. The brokerage firm expects a new residential cycle to become evident over 2021, as investors and end-users get back into action. If the tech hiring remains strong, then Jefferies India believes that office demand could surprise in the second half of 2021. The research and brokerage firm has raised estimates and price targets up to 25 per cent with a ‘buy’ rating on five realty stocks.
The Nifty Realty index has jumped over 8.5 per cent so far in January 2021 to date, as compared to a rise of 2.45 per cent in Nifty 50 index. In today’s session too, Nifty Realty index outgunned the benchmark index by rising 4.4 per cent, led by a rally in DLF and Brigade Enterprises Ltd stock prices, which hit their respective fresh 52-week highs. The brokerage firm expects the listed developers to outperform the industry given consolidation and shifting consumer preferences.
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DLF (TP: Rs 285)
Jefferies India sees 15.38 per cent rally in the DLF stock price as it believes that the realty firm has made a timely decision in FY21 by changing its policy on the residential segment to sell at project construction start, instead of the policy over the last four years of selling closer to completion. It also highlighted that DLF’s residential business will be benefited from a lack of competition in the home National Capital Region (NCR) market which has seen several large developers going bankrupt over the past five years.
It will take Godrej Properties to jump 19 per cent from the previous close to touch the target price. According to Jefferies India, as the property upcycle will kick in, Godrej Properties Ltd will see dual benefit of a rising market-share and an expanding market. The realty firm is now the largest listed residential property company. The brokerage firm sees strong returns potential in the Godrej Properties stock over medium-term.
An upside of 16.5 per cent will be needed to hit the target price set by the brokerage firm. The sharp pick-up in Mumbai property sales has come as a boon for Oberoi Realty which benefits from a large Rs 120 billion of inventory in projects which are either in the late execution stage or already completed. Jefferies noted that reduction in development charges announced by the Maharashtra government will also benefit the realty major.
Prestige Estates Projects (TP: 357)
The research and brokerage firm expects Prestige Estates Projects’ residential pre-sales to rise from Rs 3,800 crore in FY20 to Rs 5200 crore in FY23, crossing its previous peaks. The target price by Jefferies is based on a roll forward to FY23 and a lower cap rate (8 per cent) to its remaining lease assets.
Sobha (TP: Rs 577)
Jefferies India sees a 20.45 per cent rally in Sobha stock price on the back of rising pre-sales to record levels and improved market conditions. The brokerage firm expects Sobha Ltd to grow by 37 per cent over FY21E-23E as new launches help drive growth. “The pick-up in the residential cycle, and within that Sobha’s own strong performance, comes as a much-needed respite,” the brokerage firm noted.
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