As on 13-June 2008, the index of the top 10 Indian Real Estate companies "Indian Realty Index" (consisting of DLF, Unitech, Sobha, Puravankara, Peninsula, Parsvnath, Omaxe, Indiabulls, HDIL and Akruti) was down 20% as compared to a year ago.Of these, the biggest losers were Sobha, Puravankara, Parsvnath and Omaxe each of which lost about 50% of their market capitalization in the last year (18-June-2007 till 13-June-2008).
DLF, Unitech, Peninsula and HDIL have each seen their share prices drop in the range of 15% - 30% during the same period.
While IndiaBulls has remained flat, Akruti has been the only Indian real estate developer that has witnessed a 150% increase in its share price during this period. Akruti's stock has appreciated as much as 270% when the Sensex was at its all-time high in mid-January 2008. Akruti has been involved in slum redevelopment projects in Mumbai which usually offer high IRRs.
Even in the current market scenario, the median enterprise value to revenue multiple and enterprise value to EBITDA multiple stands at 7.8x and 13.4x respectively. This is mostly inflated by Akruti and DLF, both of which have PE ratios of 69x and 44x respectively.
Overall, the Indian Realty Index has underperformed the Sensex. The latter has increased 8% during the same period (18-June-2007 till 13-June-2008).
The Indian Realty sector has finally experienced a reality check as most of the top developers have significantly underperformed key market indices such as the Sensex and S&P500.
The key question investors are asking is if this trend in value erosion is going to continue due to increasing inflation and interest rates and an evident pricing mis-match between developer and potential realty investors or if there is going to be a slow and steady stock price recovery as developers and investors assume the intrinsic value to be much higher than the current market valuations of these realty companies. It gets even more interesting as real estate developers are desperately looking out for funds to finance their current/planned projects.
I guess only time will tell...
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