Asian have opened mix.Hangseng was down by 163 pts while Nikkei was up by 93 pts.
SGX Nifty was down by 13 pts.
Our market will open flat.
Nifty Support : 5065 / 5040
Resistance : 5180
Intraday/Positional Calls
Stocks to Buy in dips : Essaroil,IOC,Indiainfo,TechM,Siemens,Rcom,Bharti
If market corrects,
Sell Jain Irrigation sl 812 Trg 770
Sell Videoind sl 226 Trg 210
Sell Axis Bank sl 1032 Trg 1019/1003
Sell HDFC sl 2763 Trg 2655 (Short positional below 2645 closing)
For more levels,
Call on +919975060000
Godrej Property Analysis :
Mumbai-based realty player, Godrej Properties, follows a joint-development strategy which is not reliant on holding a large land bank. It could turn out to be among the model strategies for the real-estate industry, with a lean structure that does not lock into land cost . The structure has, however, not entirely protected the company from the vagaries of the real-estate cycles; this company too has been hit by the slowdown and has been confronted with a decline in sales, profitability and higher debt over the last year.With limited projects slotted for completion over the next one-two years, the offer price band of Rs 490-530 does appears a tad expensive for retail investors. The company may warrant a re-look on any sharp stock price declines or on improved scale of operations. Though such valuations are accorded to large players such as DLF and Unitech, Godrej Properties may not be strictly comparable, due to a much smaller revenue base and less diversified operations. Stocks of mid-sized realty companies (a segment in which Godrej Properties can be classified) trade at a good discount to the larger ones.BackgroundGodrej Properties is a subsidiary of Godrej Industries. The company has so far completed 23 projects, selling about 3.2 million square feet of residential and commercial property, mostly in Mumbai and its adjoining cities. It currently holds an estimated saleable area of 50 million sq. ft, of which only about 4 per cent is from its own land reserve.The company plans to raise about Rs 500 crore through this public offer, a good part of which would be used to acquire development rights for its forthcoming projects (which account for 36 per cent of the 50 million sq. ft of saleable area) as well as for repayment of loans.Joint developmentAbout 77 per cent of the area to be sold by Godrej Properties comes under the joint development model. This model involves entering into development agreements with the owners of land who are typically entitled to a share in the developed property or revenues/profits arising from the same or a combination of the two. This model has the advantage of avoiding direct land dealings for the realty developer and locking up extensive capital in land, leaving funds to meet working capital . On the flip side, purchasing development rights is not cheap especially in cities such as Mumbai. Besides, low-cost land bank accumulated years ago, has enabled bigger players such as DLF to earn superior profit margins. Holding land parcels has also allowed a number of developers to sell plots to tide over the fund crunch and meet their construction costs on other ongoing projects. Further, even as revenues would have to be shared in the joint development model, the entire construction cost would have to be borne by the developer.Clearly, with long-term projects in hand, Godrej Properties has suffered over the past year, with a debt equity ratio of 2.3 times as of September 2009 (set to reduce post issue), and high working-capital borrowings as well. While the reported interest costs, which are net of interest receipts are negligible, at a gross level they accounted for a stiff 60 per cent of the sales and operating income for the six months ended September 2009. These factors suggest that the development rights model too may not be free from upfront capital costs and can hurt financials if fund flows are affected.For the year ended March 2009, income from operation fell by about 10 per cent to Rs 205 crore. Total income for FY-09 as well as for the period ending September 2009 was propped up by ‘other income' from sale of the company's equity share in some of the projects to real estate funds.For the April-September period, for instance, ‘other income' accounted for 50 per cent of the total revenues of Rs 115 crore. At an operating level, therefore, profit margins declined sharply. While this income is not sustainable, that real-estate funds have chosen to invest in the company's projects may be a positive reflection on the quality of projects.Over FY-08 and FY-09, the company managed operating profit margins of 52 per cent and 34 per cent respectively. The OPMs of FY-08 may be hard to replicate, given the decline in commercial projects and increase in affordable residential projects that are ongoing or planned.A sizeable number of Godrej Properties' projects are slated for completion post 2012. While revenue on these projects would be booked on percentage completion basis, sale of projects would be yet another issue. The current proportion of projects sold is in the range of 20-45 per cent (except in case of the Mahalaxmi and Bangalore residential projects), and this includes those already launched and slated for completion by 2010.The company does own development rights to large tracts of land in Vikhroli and a few other cities with group/promoter companies which may help scale up its revenue base significantly once these projects materialise. However, such revenue stream would be available only over the next three-five year period. These developments may be triggers to reconsider investing in the stock.
Recommendation : Buy
Reality Watch :
aGovt May Remove 3-Year Lock-In For FDI In Real Estate:
The government is likely to remove the mandatory three-year lock-in period for overseas investments in the sector, to boost foreign direct investment (FDI) in real estate. This move has been proposed by the department of industrial policy and promotion (DIPP), with a draft cabinet note on the proposal being circulated for inter-ministerial consultations. To remove the 3-year lock-in period has been a long-standing demand of Indian developers as well as foreign investors.
a South Asia Real Estate Fund Plans To Raise $100m More:
South Asia Real Estate (SARE) fund plans to raise another $100 million during January-March next year. The company is likely to rope in a new set of investors, apart from its existing ones. SARE Fund, a part of Duet Private Equity Ltd (DPEL) of Duet Group, an alternative asset management firm based in London, has by now invested $180 million across six projects in India, and is aiming to close its next deal in December. The company, which is also into executing projects besides making investments, is looking for projects in Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad and Lucknow. It aims to invest in 15-20 projects and work on 10-12 projects in the next 15-18 months.
a Dubai Crisis Has Not Hurt Indian Realty Market:
A majority of realty majors in India said they are protected from the financial crisis in Dubai and it will not have any impact in the country's property market. Biggies like DLF, Unitech, Parsvnath Developers and Emaar MGF said they have no exposure in Dubai, while Omaxe said it has an investment of Rs 40 crore (Rs 400 million) which it has asked for refund. However, consultant Jones Lang LaSalle Meghraj country head, Mr. Anuj Puri cautioned that if the corporate debt default in Dubai turns into a sovereign default, there would be real economic issues, which may not only hit India but others also.
a Good News To Come Soon For Cash-Strapped Realty Firms:
Some good news is about to come for cash-strapped realty firms. The finance ministry is planning to allow the developers of integrated township to use funds from overseas or external commercial borrowings (ECB) for another year. In spite of reservations by the Reserve Bank of India, the finance ministry feels enabling integrated township developers to raise ECBs would help boost infrastructure facilities. In the existing policy, utilisation of ECB proceeds for realty is not permitted. However, it was allowed as a sector-specific measure for the development of integrated townships.
a Three lakhs and sixty seven thousand (367,000) Residential Units In Seven Metro Cities By 2011: According to property consultancy firm Knight Frank, 367,000 housing units will be available by 2011 across seven Indian cities of which 25 per cent will come up in the National Capital Region alone. After analyzing potential residential supply, the report said that with 92,202 units, NCR would be the highest contributor to the supply followed by Mumbai with 20 per cent or 72,906 units, during the period. Hyderabad would contribute 15 per cent or 53,000 housing units, Pune 14 per cent, Bengaluru 10 per cent, Chennai nine per cent and Kolkata would put in seven per cent of the total supply. The study also said that realtors were now increasing their focus on catering to the middle-income segment with up to there bedroom-hall-kitchen housing units and not on 4&5-BHK or penthouses as they used to do few years back.
a Seventy two thousandm, nine hundred and six (72,906) New Flats To Come Up In Mumbai By 2011: Real estate consultancy, Knight Frank revealed that 72,906 new homes will be up for sale in the next two years. Many developers have again started work on projects which were stalled due to the slowdown, while others have taken up new ones. The consultancy said that most projects are 800-2,000 sq ft two-and-three bedroom, hall-kitchen (BHK) flats. Mr. Pranay Vakil, chairman of Knight Frank India, said, "Developers have re-sized their flats to smaller units to suit the demands of the buyers." A two-BHK flat, which was earlier sized at 1,100 sq ft, is now re-sized at 800 sq ft. The firm also revealed that flats are more expensive in south Mumbai as there are fewer constructions in the area (4,732 flats). Western suburbs are seeing the highest number of constructions, 26,611 flats, in the city with upper middle-class buyers and the middle-class eyeing constructions in areas such as Bandra, Khar, Santacruz and Juhu. Though flats in areas like Goregaon, Malad and Mira Road are comparatively low-priced, they are popular as well due to connectivity.
a Tata Housing To Enter New Markets: After receiving phenomenal response for its low-cost housing project at Boisar, Tata Housing now plans to launch similar projects in tier I and tier II cities, its chief executive said. "We will set up a pan India presence. We are expanding into new geographies and markets like Lonavala, Pune, Chennai and others," said Mr. Brotin Banerjee, CEO & MD, Tata Housing Development Company. Its foray into new markets comes after its successful entry into the ultra low-cost home market for industrial workers in fringe areas of Boisar. Six months back, the company had launched housing projects in the price range of Rs 3.9 lakh to Rs 6.7 lakh on the portion of a 67 acre plot. "We received 7,000 applications for 1,000 Shubh Griha flats and as a gesture of goodwill offered another 300 flats in the first phase. All the 1,300 flats will be delivered as per schedule in March 2011," Mr. Banerjee added.
a Sahara Prime City Project Hopes To Raise Money Through IPO: Sahara Prime City (SPCL), promoted by the Sahara group, has pinned its hope on its proposed initial public offer (IPO) to bring in enough capital for construction and development of integrated townships. "We plan to raise Rs 3,000 crore from the markets, of which Rs 2,700 crore will be used for construction and development of projects and Rs 300 crore for corporate expenses," said Mr. Sushanto Roy, head - infrastructure and housing. The company is developing only integrated townships as part of its business model and till now it has invested Rs 3,500 crore on this. The company plans to build 217 townships across the country under the brand name Sahara City Homes. The list includes 10 townships each in Andhra Pradesh and Tamil Nadu, 19 in Bihar, 4 each in Assam, Chhattisgarh and Orissa, 11 in Gujarat, 14 in Hyderabad, 6 each in West Bengal, Jharkhand and Uttaranchal, 12 in Karnataka, 16 in Madhya Pradesh, 17 in Maharashtra, 1 each in Pondicherry, Chandigarh, Goa, Himachal Pradesh, Jammu & Kashmir and Kerala, 9 in Punjab, 13 in Rajasthan and 50 in Uttar Pradesh.
a Integrated Townships; Realtors' New Mantra: Integrated township is the new buzzword in the realty market. These days, more and more realtors are planning huge investments in projects that they say would reduce pressure on city infrastructure and bring in crores of investment into the housing sector. An integrated township comprises residential complex and some additional facilities such as school, hospital, hotel and retail. Quite a few developers including Tata Housing, Emar MGF, Ansal Properties and Infrastructure (APIL) and Kumar Urban Development have planned integrated townships in the country.
a Builders Expect Development in Commercial Real Estate Demand: Following the correction in commercial realty rates in metros by 20% to 40%, top builders expect sales to improve by 50% in Q3 and Q4 of 2009-10. In the first two quarters of the fiscal, sales of office space rentals grew 10% to 15%. To tap the growing opportunity, large builders in various metros are offering ready-to-possess offices, shops and commercial plots, and under-construction offices at 15% to 20% discount. The correction in commercial real estate rates comes at a time when the general sentiment is buoyant. There is ample cash flow in the market. However, the correction in the office space rentals is 15%— lower than that of the residential real estate sector.
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