Track2Realty Exclusive: A Crisil Research report maintains that absorption of new residential units across six key cities is likely to increase at a compounded annual growth rate of 7 per cent in the next two years, with Mumbai registering the highest CAGR of 14 per cent in the next two years due to huge pent-up demand. Meanwhile, the Bangalore realty market is likely to see a stable rise in sales with firms such as Sobha Developers Ltd and Prestige Estates Ltd benefiting.
Beyond the debate over the performance of realty stocks in the financial year ahead, analysts are of the view that the stock price of a company is affected by many factors besides the performance of the company alone. The stock price also considers factors such as macro economic growth, expected overall sector growth outlook, investor sentiments etc.
The stock prices are affected daily by some news of probable deals, analyst forecast of the sector and company, etc. though the financial situation of the company is not that dynamic to change on a daily basis. Stock price of a company may not be the best index to judge the performance of the company alone, but average stock price over a right duration of time, provides cues on general direction of the company.
Neeraj Bansal, Director, Real Estate & Construction, KPMG India believes owing to the inherent nature of long gestation projects business, conducting an outside research on the real estate company’s stocks is difficult and incomplete because by nature the real estate market is dynamic, being affected by several external variables & several of the companies are highly leveraged.
“On book companies may have large land banks as assets, but it is their ability to secure timely licenses, clearances and complemented by favourable market conditions that such real estate companies would be able to monetize the assets & provide value to its share holders. Because of these external market variables, regulatory clearances and also companies’ ability to scale project execution capacity in the real estate market, the reports are more a judgment of the facts rather than strong analysis of the future of the companies. With the change in market conditions the interpretation of these facts changes & could trigger variation in the share price of these companies,” says Bansal.
Kamal Khetan, CMD, Sunteck Realty agrees that real estate is not yet matured from the capital market point of view in the country. Out of more than 100 companies with a sizeable portfolio only a handful of them are listed. These companies too have got listed in the last 6-7 years.
There has always been lot of debate amongst financial analysts and institutional investors on the best method to value real estate companies. Various methods like land bank, PE ratio, Cash flow visibility/current ongoing projects etc are some of the ways used by investors to value the stock of the real estate companies from time to time.
“With no uniform way of valuations, the stocks of real estate companies keep on fluctuating without recognizing the company’s business performance. Having said that being listed gives a lot of fund-raising opportunities to the listed companies and they recover faster from the down-turn as compared to unorganized players. IPO / QIP / Pref-allotment /OFS are some of the fund-raising avenues for the listed real estate companies apart from the conventional debt based funding,” says Khetan.
It raises a fundamental question as to how much is there a co-relation between a company’s brand equity and stock performance. Analysts believe brand equity may not directly influence the stock performance but it definitely helps in attracting new customers & marking a differentiation for the company.
This in turn helps if better sales & revenue, thereby affecting the stock value in the market. In the recent past lot of unlisted real estate companies have used film & sport stars for branding which have helped them in improving sales.
…to be continued
