Macrotech Developers our first choice in the real estate sector: Dipan Mehta
I am surprised that on the one hand Bajaj Finance reported a tightening but on the other, Asian Paints, which is a consumer game, recorded strong growth in volume over the past quarter.
You need to take these numbers with a pinch of salt. There has been a lot of disruption. I wouldn’t assume this was a good quarter for all discretionary spending. There are pockets where volumes have held up well as we’ve seen in the paintings, but I wouldn’t use that as a benchmark for all discretionary-related stocks. There are many companies where the numbers appear to be optically good compared to last June. But when you take it a step further and see quarter-to-quarter, it’s not as exciting as it looks year-over-year. The earnings season is a bit confusing. You need to understand the background and the basic effect here. I would like to be a little careful even in Asian paintings. Without a doubt, it’s a big long-term story. But a lot of bright spots are captured in the share price, given the valuation it is trading at.
What stocks do you like in the real estate pack? Real estate is largely a regional game, rather than a pan-Indian game.
Most real estate companies are regional plays. They’ve learned the hard way that it’s best to focus on your area of expertise. Understanding the market has been the key to success. The only exception is
, which is in a class of its own. Having said that, we are very positive about the real estate industry. Nearly 10 years of underperformance may be coming to an end here. We are reaching a phase where there is good volume growth and where prices will also remain strong and could also have an upward trend.
All of the listed real estate companies that have survived, whether DLF, Sobha, Prestige or Oberoi, are in very good shape in terms of balance sheets. As an industry, they focus more on the collections and not on the land reserve. They focus on mid-range and affordable housing, rather than top-quality housing. They have the complete formula in terms of branding, delivery, financing and management of their projects. The next few years could be very good for real estate companies.
Our first choice remains Macrotech Developers. I know this is a company that has a history and has been involved in a few controversies, but overall these are where DLF was maybe three or four years ago. The focus in their balance sheet on monetizing their assets is going to work very well. What I like most is the size of the company and its dominance in one of the most expensive and dynamic markets in India – Mumbai and Pune. There might be a few surprises when it comes to corporate governance, if at all, but given the valuations it trades in in the context of what it can potentially offer, I’m very positive about this company. For more secure investors, it’s still Godrej Properties. But this title has performed incredibly well over the past two or three years when the industry was not doing well. Expect yields to decline now.