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Book Profits in DLF + Unitech – Kotak

April 13, 2009

Real estate stocks have rallied rapidly over the past three weeks as new launch activity has picked up at 25-30% discount to prevalent prices. Good responses to some of these projects especially in Mumbai and Delhi have further contributed to this positive sentiment. However, despite the better launch activity in March, Kotak continues to observe large consensus downgrades in March.

Expect 4QFY09E to be extremely weak, with sales dropping 70% yoy and 16% qoq, driving 81% yoy and 39% qoq de-growth in profits.

Sharp reduction in commercial revenues, and new sales have to be significantly higher to maintain same contribution as selling prices are sharply lower. Improvement in financial performance thereafter will depend on sustained recovery in volumes.

Kotak Research believes real estate stocks should continue to trade at discount to Mar-10 based NAV’s as uncertainty on pricing and volumes continues. As a result, we advise investors to reduce exposure to real estate stocks; especially DLF and Unitech post this sharp rally as we believe these stocks will offer better entry points.

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