Akruti City: Book profits

Investors in the stock of Akruti City (Rs 880) can consider booking profits by reducing their holdings in the stock. The steep surge in Akruti’s stock price (over 40 per cent between January 2009 and now) does not appear to be supported by any near-term fillip to its fundamentals. Further, at 12 times its trailing earnings, the stock is at a steep premium to similar-sized and even bigger players in the realty space, which are mostly trading at a price earnings multiple range of 4-8 times.

Most of the real estate stocks have been beaten down to rock-bottom valuations as a result of the current slowdown. Severe selling pressure faced by the realty companies was also reflected in their financials especially in the December 2008 quarter. Akruti City, a key player in the Mumbai slum rehab projects, also proposes to generate much of its future revenues from the same segments as its peers, suggesting that the premium it currently enjoys may not be justified. It’s sales for the quarter-ended December 2008, declined by 64 per cent while profits declined by 79 per cent. Of the total saleable area, Akruti has significant proportion of projects in the commercial and IT park space — segments which have witnessed a significant decline in offtake. The company has shifted focus to budget residential space. This, along with primary presence in the relatively robust Mumbai market, may aid earnings prospects over the long-term.