Review of select real estate sector stocks

Sundaramurthy Vadivelu

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The India Street previously analyzed the following IPO’s:

• DLF Limited

• Housing Development and Infrastructure Limited

• IVR Prime Urban Developers Limited

• Omaxe Limited

• Puravankara Projects Limited

These stocks have been listed and we had discussed in my previous article, “How do IPO’s fare in Secondary Market?” about how IPO stocks are received by the market particpants. Some stocks perform exceptionally well and some others get discarded by the crowd.

In this article, let us discuss the short term perspective of the five stocks mentioned above using daily charts.

Summary:

Scrip	IPO Price	Price 05-Oct	% return
DLF	525	851.10	62.11
HDIL	500	722.20	44.44
IVRPRIME	550	441.30	(19.76)
OMAXE	310	317.40	2.39
PURVA	400	460.45	15.11

We indicated that IVR Prime might be avoided in the short term. It may be noted that Puravankara had extended the IPO subscription period by five days and also reduced the price band from 500 – 525 to 400 – 450 per share. This happened at a time when the “US Sub-prime mortgage crisis” was being cited as the reason for stock market collapse.

The following table gives the BSE Group/Scrip codes for the stocks.

NSE Symbol	BSE Group	Scrip Code
DLF	A	532868
HDIL	A	532873
IVRPRIME	A	532881
OMAXE	A	532880
PURVA	A	532891

DLF:

The stock got listed on July 5. On August 13, it touched a low of 490, 35 less than its IPO price (See chart below).

http://groups.google.com/group/theindiastreet/web/DLF_D_051007.jpg

The long lower shadow when it broke the support indicates that there was lot of buying support at lower levels. Technically, it broke its short term resistance on September 19 with an upward gap. On October 3, it managed to touch a high of 904, gaining 16.38%. If we consider 100% retracement from the low of 490, the target for this upmove works out to 980.

On October 3, the BSE had made an announcement that “the Company has been awarded the project to develop a ‘New Bangalore City’ in Bidadi following a global tender issued by Bangalore Metropolitan Regional Development Authority (BMRDA). The project shall generate value in excess of Rs. 50,000 crore (USD 12.5 billion), which is the single largest investment in real estate in India.”

It may be noted that the ‘news’ arrived in the marketplace nearly two weeks after it had broken its resistance. This is a good example of how the stock market works.

HDIL:

This stock too, had gone below its IPO price of Rs.500 on August 6 after getting listed on July 24. Interesting to note that it touched a high of 634.30 on July 26.

http://groups.google.com/group/theindiastreet/web/HDIL_D_051007.jpg

The stock recorded a low of 477.50 on August 22. At the time of the so called US Sub-prime mortgage crisis, this stock closed below its IPO price on 4 occasions – only to bounce back. Similar to DLF, the stock had broken its resistance on September 19 with an upward gap.

A bullish “harami” candlestick pattern was formed on September 26. On October 4, the stock had closed at 707.15, gaining 6.42%. There seems to be some more upside left, as the technical target from the low of 477.50 works out to be 773.

IVR Prime:

We gave the following reasons for avoiding the IPO in the short term.

• Issue was slightly overpriced compared to others.

• Except the Gachibowli project in Hyderabad, IVR Prime has not executed any other project; others are in planning stage.

• The company owns only 14% of its projected 2,478 acres land bank.

http://groups.google.com/group/theindiastreet/web/IVRPRIME_D_051007.jpg

On the day of listing i.e. August 16 the stock made a high of 495, 55 less than the IPO price. This is the critical resistance for the stock. On August 23 the stock made a low of 343. Though the stock closed above 425 on September 24, it registered a lower low of 358 on September 27. This violates the Elliot wave theory. Though 343 still remains intact, formation of a lower low during an uptrend indicates that a reversal is likely to follow.

Unless this stock closes above 495 with reasonably good volumes, one should not expect any upside from the stock. The market has endorsed The India Street’s view on the IPO.

Omaxe:

The stock opened at 410 on August 9 with a premium of Rs.100. It touched a high of 448 before closing at 349.35. However, it opened with a huge downward gap of 13.90 on August 16. On August 22 it touched a low of 263.15.

http://groups.google.com/group/theindiastreet/web/OMAXE_D_051007.jpg

It can be seen from the above chart that wave 1 is complete and wave 2 is in progress. The stock faced resistance around 355.70 (50% retracement level) and it closed above it for 2 days in a row. With the current trend it has support at 304.10 which is 61.8% retracement level. The stock needs to break its resistance at 369.95 on a close basis in order to move upwards.

Puravankara Projects:

The stock opened with a negative premium of Rs.90 (IPO price: Rs.400) on August 30. It has been the lowest till today. After 13 trading sessions, it broke its previous high of 390 (made on day of listing) on September 18. On October 5 it closed above 452.50, a high made on September 24. The short term target works out to 501.60 when calculated from a low of 310.

http://groups.google.com/group/theindiastreet/web/PURVA_D_051007.jpg

Sundaramurthy Vadivelu

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High net worth individuals of India moving into luxury apartments as high-end properties booming

By Dr Suvrokamal Dutta

With the wide array of properties coming up in different parts of India, one can't help but feel that a large segment of the population probably plan to living in apartments or residential areas that boast the snazziest facilities.

The sheer magnitude and size of the projects that are being developed will make you wonder about the demand in the high-end luxury segment. The million-dollar question is: Why are individuals luring towards these properties that come attached with such a hefty price tag? Even more importantly, why are real-estate companies continuing to build these high-end properties?

For example, it has come into the notice of The India Street that Unitech Grande is being developed in Noida over 347 acres of sprawling land. According to sources, the 2,200 sq ft-plus apartments have been priced at Rs 7,750 per sq ft with the first installment comprising 10 per cent of the cost.

Generally speaking, the price of these apartments begins from around Rs 1.8 crore (Rs 18 million) and there is an every possibility that it can increase further in the coming years. It is worthwhile pointing that the project involves 10 global architectural and design consultants. Furthermore, it contains 90 towers, of which eight will be signature towers and four gateways, having 36-45 floors each.

“With a increase in incomes and property prices, a large number of real-estate companies are giving, besides their other projects, high-end properties for consumers,” pointed out Raghuvar Dayal, senior business journalist based at Noida.

Apart from Unitech Grande, Omaxe has a project along identical lines but on a somewhat lower scale in Faridabad. Called The Forest, this one has apartments ranging from Rs 4,000-6,500 sq ft and attracts a price tag of Rs 2.25-4.5 crore (Rs 22.5-45 million).

In my opinion, there is a continuing burst of luxurious villas and penthouses in the Indian real-estate market because prices are skyrocketing and therefore the middle segment is losing its lustre in the process. I don’t believe it will be the case for too long, as the market will finally see some sort of stability. I had a talk with some of the experts and most of them were of the opinion that the market for high-end properties is no doubt booming, but as a result the mid-rung is still not being ignored.

The pivotal factor here is that with increasing disposable incomes, the definition of 'mid-rung' too is quickly changing with almost everyone spending more to settle into more comfortable, more luxurious apartments. The question now arises: Is the high-end market getting crowded? The answer is no because plenty of high net worth individuals who reside in old kothis and bungalows are now moving into luxury apartments simply because it is very tough to manage palatial houses.

Suggested Reading:

Real estate frauds in India on an upswing

India Stock Market – Weekly Review

Disclosure

Correction in Nifty continues; clear picture may emerge next week

In the last week’s review we discussed about “harami” candlestick pattern and it could be a confusing signal unless confirmed by a green candle and positive close above 4530. For this to happen, the index had to gain about 128 points, preferably with a full upward gap or even a partial upward gap. I had also mentioned that it didn’t seem to be a possibility since bulls were losing momentum on Friday.

As expected, confirmation couldn’t be achieved on Monday, as the market lost 62.05 points. However the bulls were seen in action on Tuesday as the market gained 16.85 points. But it formed an “inverted hammer” meaning the index was brought back near its opening price due to sell off at higher levels. On Wednesday the bulls were in perfect control; the Nifty gained 105.75 points. Again, a “three inside up pattern” was formed. The index achieved a high of 4530 on Thursday before collapsing once again by 58.90 points. So 4530 has acted as a strong resistance for the index. On Friday the market was deep in red with the index losing 164 points at one stage. However, the afternoon session saw bulls coming back once again. Nifty had lost 69.85 points today. On weekly basis the index has lost 68.20 points or about 1.55%.

http://groups.google.com/group/theindiastreet/web/NiftyDaily100807.GIF

In the daily chart of Nifty, we can see the “Three inside up” pattern (“Harami” followed by a green candle and higher close). Since the bulls failed to cross 4530 and after yet another fall, we have to maintain 4218 as the next support level.

Now that the index has closed below 4363 on Monday/Tuesday as well as today this should act as a minor resistance when Nifty reverses. Let us discuss the Fibonacci retracements as shown below.

http://groups.google.com/group/theindiastreet/web/NiftyFibo100807.gif

It can be seen that 4310 (61.8% retracement level) has not yet been breached on a close basis, though low went below it on a couple of occasions. A close below this level would mean that when index reverses, it may find difficult to break its resistances and the trend may not be strong.

The intraday chart of Nifty for Thursday is been shown below. On Thursday bulls lost control in the afternoon while today they were back in action after 2 pm. Thursday’s quick fall meant that the market had a strong negative opening today. The bulls have managed to break intraday resistance and this could be positive for next week.

http://groups.google.com/group/theindiastreet/web/NiftyIntra090807.gif

Today’s intraday chart is given below:

http://groups.google.com/group/theindiastreet/web/NiftyIntra100807.gif

Intraday charts courtesy: NSE web site (www.nseindia.com)

Forecast for next week:

In all probability the market should recover and reverse in the coming week. We saw a strong lower side volatility and intraday resistance breakout today. At market tops and bottoms, volatility will be very high. So the level of 4310 needs to be watched on a close basis. A close below this will make the index more sluggish during pullback rally. A close above 4530 will mark the return of bulls and the market will be ready for further uptrend.

Advance / Decline Ratio:

Date	Adv.	Dec.	Unch.
06-Aug-07	314	790	24
07-Aug-07	724	369	31
08-Aug-07	841	258	31
09-Aug-07	268	843	24
10-Aug-07	309	799	26

This leads to an overall advance % of 43.46, decline % of 54.13 and unchanged % of 2.41% for the week.

Top Gainers / Losers among Index stocks:

Scrip	% Gain	Scrip	% Loss
HCLTECH	6.82	VSNL	8.57
GLAXO	5.74	HINDALC0	6.98
TCS	4.34	STER	5.86
SUZLON	4.28	ICICIBANK	5.61
BPCL	2.30	GAIL	5.10

Top Gainers / Losers in overall market:

Scrip	% Gain	Scrip	% Loss
ETCNET	92.71	ABGSHIP	17.63
CONSOFINVT	40.03	LOKESHMACH	11.45
ORBITCORP	37.79	IBREALEST	11.11
RUCHIRA	29.92	RENUKA	10.91
JAICORPLTD	27.63	GREAVESCOT	10.37

Please note that only ‘A’ group and ‘B1’ group stocks of Bombay Stock Exchange (BSE) are considered for the above table.

ETC Network is a case of bear trap. Orbit Corporation was The India Street short term pick. From 272.70 on June 29 it has appreciated to 504.30 today (85%). We discussed about Indiabulls Real Estate in “Technical review of select India stocks for medium term” and Shree Renuka Sugars in “How do IPO’s fare in Secondary Market?”.

The India Street analyzed Puravankara Projects Limited IPO. The issue closed on August 8 after the price band was revised to Rs.400/- to Rs.450/- per share. It got oversubscribed by 1.91 times. Qualified Institutional buyers oversubscribed the issue by 2.69 times, high networth individuals by 0.99 times and retail investors by 0.64 times. Omaxe got listed on August 9. It was issued for Rs.310. It opened with a premium of Rs.100 at Rs.410. It reached a high of 448 after listing. However, it couldn’t sustain selling pressure at higher levels and closed today at 345.75.

Our short term pick India Glycols closed at 184.80 on August 8, gaining 12.55% since our analysis on July 18. Long term pick Nagarjuna Fertilizers gained about 13.20% this week. Apart from these there are no other major movers among our short, medium or long term picks.

Sundaramurthy Vadivelu

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Highway Malls Next Biggest Thing in Real Estate

By Vipin Agnihotri

The concept of the highway mall, though new to India is fast catching up with more and more top international brands signing up with developers of these malls. Gurgaon at this moment of time has become the hot spot of malls, also other side of Delhi is coming up with highway malls, namely, the north of Delhi border, Sonepat and beyond.

It is worthwhile pointing that from a handful of malls in the mid 90s, India has more than 100 malls spread across large and small cities. Generally speaking, developers have been experimenting with different retail formats now and then to offer something new to the customers like specialty stores, department stores, hypermarket, but highway malls is the new retail mantra that has caught the fancy of developers right now.

It has come into the notice of The India Street that big developers such as TDI, Ansals, Omaxe Group & Parsvnath Group have already realized the potential of these brands. Brands like Blackberry, Adidas, McDonald’s, Reebok, Provogue, Adlabs have already signed up with the developers for a space in highway malls.

The very fact that these leading brands are eager to be a part of the highway mall culture is because the land cost in metros is high and the return on investment is low as compared to non-metros, hence it becomes difficult for the brands to sustain themselves in the long run.

Another significant benefit of big format highway malls is that zoning can be created with utmost ease. In my opinion, the success of mall culture in Delhi and other metro cities has had a ripple effect in non-metro cities. Also, taking into account the burgeoning purchasing power even in the suburban areas and a change in the lifestyle preferences of the consumer there, developers are optimistic about the success of the project expecting a footfall of more than 20,000 people per day including local residents and highway traffic.

If experts are to be believed, highway malls is the next big thing amongst real estate developers serving as a one-stop shop for those travelling on the highway. There is no doubt in my mind that success of this new retail format can be foreseen with the fact that most of the top national and international brands are jumping in to take a pie in all the upcoming highway malls across India.

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Omaxe IPO A Good Investment – The India Street Analysis

The India Street analyzed DLF IPO and HDL IPO recently. Another Delhi based real estate developer, Omaxe Limited plans to raise about Rs.605 crores through their initial public offering. The issue opens on July 17 and ends on July 20. The proceeds of the IPO will be utilized to acquire lands, repay loans and to meet construction costs.

The company was originally promoted by Rohtas Goel as Omaxe Builders Private Llimited in 1989. The primary objective was to venture into construction and contracting business. It became a limited company in 1999 and the name got changed as Omaxe Construction Limited. Now it is just Omaxe limited. The company has executed more than 120 industrial, institutional, commercial, residential and hospital construction projects. Omaxe entered into real estate development in 2001.

Within about 5 years of its entry, it has completed and delivered 10 projects (8 residential and 2 commercial) covering approx 5.13 million square foot area, with on time schedule. About 52 projects are in currently in progress. These include 1 hotel, 14 commercial complexes / shopping malls, 16 integrated townships and 21 group housing projects. Omaxe has declared land reserves of 3,255 acres, representing 150 million square foot of developable area, mainly in North India, but spread across nine states.

The company has received several awards such as ‘Svedala’, ‘Udyog Ratna', ‘Pride of the Country', ‘Arya Vaidya Sala' for excellence in construction.

The following tables show the company’s residential projects:

Delhi:

Location	Name	Status
Bahadurgarh	Omaxe North Avenue	In progress
Faridabad	Green Valley Omaxe Hills Omaxe Heights The Forest	Delivered In progress Delivered In progress
Location	Name	Status
Ghaziabad	Habitat Floors	Delivered
Greater Noida	NRI City Omax Palm Greens	Delivered Future plans
Gurgaon	The Nile South Avenue Mayfield Garden Olive Apartments Executive Floor	Delivered Delivered Delivered Delivered Delivered
Noida	The Forest Royal Residency Grandwoods Omaxe Twin Towers The Forest Spa	Delivered Delivered In progress In progress In progress

Designer Villas at South Avenue, Gurgaon

Haryana:

Location	Name	Status
Palwal	Omaxe City	In progress
Rohtak	Omaxe City	In progress
Sonepat	Omaxe City	In progress

Himachal Pradesh:

Location	Name	Status
Baddi	Omaxe Park Woods	In progress

Madhya Pradesh:

Location	Name	Status
Indore	Omaxe City Omaxe City II	In progress Future plans

Punjab:

Location	Name	Status
Derabassi	Omaxe Greens	In progress
Patiala	Integrated Township	Future plans
Ludhiana	Royal Residency	In progress

Rajasthan:

Location	Name	Status
Bhiwadi	Group Housing	Future plans
Jaipur	Omax City	In progress

Uttaranchal:

Location	Name	Status
Rudrapur	Omaxe Riveria	In progress

Uttar Pradesh:

Location	Name	Status
Ghaziabad	Habitat Floors	In progress
Lucknow	Omaxe City Omaxe Heights	In progress In progress

The following tables show the company’s commercial projects:

Delhi:

Location	Name	Status
Jasola Wazirpur	Omaxe Citadel Pearls Omaxe	In progress In progress

Haryana:

Location	Name	Status
Gurgaon	Omaxe Plaza Wedding Mall House2Home	Delivered In progress In progress
Sonepat	Omaxe Mall	Future plans

Punjab:

Location	Name	Status
Amritsar	Omaxe Terminal Mall Omaxe Novelty Mall	In progress In progress
Ludhiana	Omaxe Plaza Omaze Mall	In progress In progress
Patiala	Wedding Mall	In progress

Pearls Omaxe at Wazirpur, Delhi

Uttar Pradesh:

Location	Name	Status
Agra	Wedding Mall	In progress
Greater Noida	Omax Arcade NRI City Centre Omaxe Cannaught Palace	Delivered In progress In progress
Indirapuram	Park Plaza	In progress
Lucknow	Omaxe City Centre	In progress

Except Omaxe Plaza at Gurgaon and Omaxe Arcade at Greater Noida (which have been sold), rest of the commercial projects are ‘Lease only’ model.

The company has got ISO 9001 certification from Det Norske Veritas (DNV), The Netherlands.

Financial performance in the recent past:

(All figures in Rs. Crores)

Item	2004	2005
Income	283.73	396.60
Expenditure	264.18	367.02
Profit before tax	17.24	26.37
Net profit	8.35	5.04

Item	2006	2007
Income	819.86	1,439.68
Expenditure	667.27	1,083.99
Profit before tax	146.70	322.32
Net profit	118.82	257.26

It can be noted from the above tables that the net profit has gone up from Rs. 5 crores in 2005 to about Rs.257 crores in 2007. This indicates strong demand for the real estate sector during this period.

The following table compares the EPS and book value among some listed real estate companies in India.

Company	EPS	Book value
Omaxe	16.72	29.87
Mahindra Gesco	3.50	189.30
Unitech	7.90	2.80
Parsvnath	5.7	69.9
Sobha	22.2	118.3

IPO details:

• Start Date: 17 July, 2007
• End Date: 20 July, 2007
• Issue Size: 1,77,96,520 shares
• Face Value: Rs.10
• Price Band: Rs.265 – Rs.310
• Market Lot: 20 shares
• Minimum Quantity: 20 shares

Download the RHP (Red Herring Prospectus) here.

Conclusion:

The company’s success has been primarily attributed to professionalism and transparency. It has successfully established in the real estate sector after starting as a civil engineering contractor. The track record of the company in executing the projects is exceptional. At the offer price of Rs.265 – Rs. 310, the P/E ratio is 18 to 20 times the company’s consolidated earnings for 2006 - 07 on the expanded equity base. The offer is at a discount to companies of a similar size in the real estate sector.

Some of its major competitors are concentrated in and around Delhi like DLF, Unitech etc. So this company faces tough challenges since they have to compete with better known players. It also has relatively lesser experience in this field than their main competitors.

Investment can be considered in the IPO with a long term perspective.

SUNDARAMURTHY VADIVELU

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