Why investors should hold on to cash-rich Oberoi Realty

There’s little doubt that mounting concerns about the real estate sector have led to large-scale selling in these stocks: the BSE Realty index has lost 48 percent in the past one year compared with the Sensex, which fell by around 16 percent. DB realty was the biggest loser as its stock tumbled by a whopping 83 percent. Unitech, HDIL and Indiabulls Real Estate were other big losers as they too plunged more than 60 percent. Parsvnath Developers was the only winner as it pocketed a 19 percent gain.

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In a report released early this month, Credit Suisse (CS) initiated coverage on the real estate sector with a preference for Sobha Developers, Oberoi Realty and Prestige Estates. “We prefer stocks with exposure to property markets with lower investor participation (South India), falling inventory levels in office, and ability to re-lever balance sheets in the current down cycle”, it said in its report.

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Here’s what they had to say:

**Oberoi Realty:**Credit Suisse initiated coverage on the stock with a price target of Rs 283 per share compared with its current price of Rs 229, reflecting a growth of almost 24 percent. Sitting on a cash pile of almost Rs 1,170 crore (net cash), it has one of the strongest balance sheets in the country.

That, coupled with the fact it can further re-leverage its balance sheet, provides Oberoi a potential cash pile of Rs 3,000 crore to pursue land acquisitions and investment projects.

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For the year ending March 2013, the brokerage expects the company to clock a 64 percent and 71.4 percent growth in revenues and profits, respectively.

Prestige Estate****Projects: CS has an outperform rating on the company with a price target of Rs 117 per share vis-a-vis its current price of Rs 91.55 per share, a growth of almost 28 percent.

Because of its high Bengaluru concentration (76 percent of total land bank), it is expected to benefit from the recovery in the office sector. Prestige generates almost 43 percent of its gross asset value from the Bengaluru office and retail market. Over the past one year, the stock has fallen by 56 percent.

**Sobha Developers:**CS expects the stock price to rise to Rs 334 per share against its current price of Rs 239.35 per share, reflecting a rise of almost 40 percent. In spite of the overall slowdown, which was aided by high exposure to South Indian residential markets, it continues to maintain volume growth due to new launches.

CS believes the company is on track to meet its 2011-12 sales guidance of approximately three million square feet, reflecting a growth of almost 20 percent over the previous year driven by the Bengaluru market.