Kotak Institutional Research has made a case for SELL on REalty Companies - Unitech and DLF,
DLF, Unitech and BSE Sensex universe are quoting at FY2011E P/B of 2.2X, 1.6X and 2.4X with FY2011E RoE’s of 10.6%, 9.3% and 16%, respectively. Thus these stocks are pricing in earnings upgrade while there has been 5% downgrade for Unitech FY2011E EPS since June 2009. Cash accretion has significantly lagged PAT for DLF/Unitech and this should result in these companies quoting at lower valuations compared to BSE Sensex.
Thus these stocks are pricing in either sharp earnings upgrades or faster relative growth beyond FY2011E. Against expectation of earnings upgrades, there has been FY2011E earnings downgrade of 4.8% for Unitech while DLF has seen upgrade of 21% on expectation of revival in commercial real estate.
