India Real Estate Developers

Goldman Sachs in their real estate report...

India: Real Estate Developers

Cause for pause: Downgrade coverage view; Ansal off Conv. Buy list

Downgrade coverage view to Neutral from Attractive

We are downgrading our coverage view on India Property to Neutral from Attractive, principally on valuation grounds. We see only aggregate 9% potential upside (mkt cap weighted) for our coverage universe that now
includes DLF, based on new target prices rolled forward to FY2009E.
Although we believe residential prices have risen in some major markets over the past year, Gurgaon, which is an important market for our coverage, appears to have experienced a correction in some pockets. Any
prolonged weakness in Gurgaon could present downside risk to our RNAV projections. We rate both DLF and Unitech as Neutral.
We are removing Ansal Properties from the Conviction Buy list.
Neutral on DLF and Unitech
DLF is better placed than most peers to execute on its pipeline given its strong management team, scale and strategic tie ups, in our view.
However, we are Neutral as valuation appears full and our 12-month FY2009E potential RNAV-based target price of Rs923 implies only 6% potential upside. We maintain Neutral on Unitech, but revise our 12-month
FY2009E potential RNAV-based target price to Rs409 from Rs330, implying 12% potential upside. We believe the stock is not pricing in land acquisitions that are currently in progress.
Ansal Properties: Taking off Conviction list; retain Buy
We are removing Ansal Properties from the Conviction Buy list as we have limited visibility on when option value on its Hi-Tech City project in Greater Noida is likely to be realised. The stock could remain on the sidelines until
the market gets greater confidence on the group’s execution capability. We still rate the stock Buy and our revised 12-month potential RNAV based target price of Rs367 (from Rs410), implies 48% potential upside.
Key risks to our coverage view
Upside risks: Land acquisitions, cap rate compression and technical factors such as liquidity and the inclusion of DLF and Unitech in major indices.
Downside risks: Execution, prolonged slowdown in residential demand.