Realty stocks down 31% in a month; is this the right time for bargain buying?  

November 26, 2010

Realty stocks have taken a huge beating. Some experts have started making noises that it may be the right time to pick up stocks with low debt exposure. We hear FIIs may indulge in some bargain buying (already evidenced with stocks bouncing sharply off intraday lows)

The BSE’s Realty Index is down 17% over a week; 31% over a month and 27% over a year at the time of writing this report. Comparatively, the Sensex is down 2.5% over a week; 5.5% over a month and is up 13% over a year. Worse-hit stocks are DB Realty, Indiabulls Real Estate, Orbit, and HDIL.


Many investors are contemplating whether the time is right to start bottom-fishing. Samir Arora said in a television interview today that he might ‘buy non-controversial stocks which have corrected’. Other experts have also started thinking in the same direction — looking for stocks with low debt levels and therefore a sort of immunity to the raging loan scandal. In fact, today we can already see evidence of this, with many stocks bouncing handsomely off their intraday lows. For example, in the morning, Unitech was down almost 18%, but is down only 7% currently.

Among real-estate stocks, Kotak research points out that DLF has a relatively high debt/equity level of 0.8 times. Unitech is low at 0.5x but is mired in the 2G scam as well. HDIL’s D/E is good after its recent QIP. Oberoi claims it has zero debt. It recently made a statement saying, “Oberoi Realty has not taken any loan from LIC, LIC Housing Finance Ltd, Bank of India, Central Bank of India and Punjab National Bank. Oberoi Realty has never dealt with Money Matters for any transaction whatsoever.” The share has recovered from a weekly low of Rs240 and is trading at Rs260 at the time of writing this report.



According to Kotak, screening for low D/E, lower regulatory involvement (discretionary FSI, government land acquisition or redevelopment) and lower residential exposure among its coverage universe, Phoenix and Mahindra Life are the two stocks that stand out. “We find 38% upside to our target price for PHNX (Rs219, BUY) with a large part of their NAV derived from retail operations with key market city launches (Pune, Kurla (Mumbai) and Bengaluru) being the key milestones over the next six months. We find 32% upside to our target price for MLIFE (Rs414, ADD) where SEZs (Chennai and Jaipur) and FY2010 cash and investments make up for 70% of its current market price,” says a Kotak report dated 25th November.


(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife) — Munira Dongre