DLF is Motilal Oswal's top stock to buy in the Real Estate sector. The research firm expects FY09-10 to be a period of consolidation, in which the industry leaders would get differentiated from peers.
Valuation and view:
We (Motilal Oswal Securities) expect FY09-10 to be a period of consolidation, in which industry leaders would be differentiated from peers. We believe developers with staying power would utilize this consolidation phase to emerge stronger.
Focus on companies with:
(1) high visibility on monetization of assets over the next 3-5 years,
(2) low leverage and robust financials, and
(3) strong execution track record. DLF is our top pick in the Real Estate sector.
Motilal Oswal's report:
In FY08, the focus was on the real estate sector as a ‘theme’, with all real estate stocks moving in tandem. In FY09, the focus has shifted to specific companies within the real estate sector.
Core issue has shifted from ‘affordability’ to ‘demand’: Industry experts opine that
the core issue in the real estate sector has shifted from ‘affordability’ to ‘demand’. Job insecurity and low business confidence have become key concerns. Studies reveal that during times of severe economic uncertainty, consumers postpone big ticket purchases.
As such, developers indicate that they do not expect demand to resurface in the near to medium term, even if (1) real estate prices correct 20-25%, and (2) mortgage rates decline 200-250bp.
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