Nikhil Khandelwal is betting on these 3 realty stocks, here’s why

Edited excerpts:

Why have you organised a real estate conference when the entire sector is in some kind of epic glut?

This is a real estate and housing conference and you are right in saying that the real estate sector has corrected since demonetisation. However, we have been tracking the sector for a long time and in the last seven-eight months since the implementation of Real Estate Regulation Act (RERA), the purchase behaviour in the real estate sector has shifted significantly towards the organised developers.

At the same time, we have also seen that the government push towards affordable housing has been strengthening with every passing quarter, passing month and every six months or so, the government is bringing new initiatives to improve the sale of affordable housing in the country.

In the last two quarters, across residential and commercial — affordable properties operating across NCR, Mumbai or Southern market have seen significant traction in sales activity, rental activity and a combination of these factors is what we believe investors must be. That factor must be highlighted to the investment community and there is significant value in the whole of real estate and housing as a piece. If we take any of the leading players across the real estate market — whether it is Godrej Properties which operates from Mumbai, NCR as well as Bangalore market or southern market players like Prestige and Sobha Developers.

Most of the real estate stocks are up more than 100% to about 300% in last 12 to 18 months. Some would argue that real estate companies are a proxy to the economy and we have an under-penetrated middle class and the demand for housing in India is going to be evergreen. For 2017, the real estate index was the performing index?

The real estate sector was seen as significantly dependent on black money and had seen significant correction as far as the devaluation across the stocks was happening. But over the last six to seven months or so, they have finally found a certain value benchmark where a lot of value buyers have actually invested into real estate sector over the last six-seven months.

What we are now talking about, however, is the growth in the sector. It is not just the value play, we are seeing significant growth potential in the sector. The presales activity across most of the real estate developers over the last four to five months is actually seeing significant traction. Most of the leading developer sales over the last quarter and over January-February is actually at a record high, which they have not seen since inception of those companies.

You can play the retail leasing as well as the corporate leasing activity through Phoenix Mills, Prestige etc. A combination of these factors is pointing towards a growth in the sector and that can only be played with some of these organised companies with strong balance sheets.

What are the companies that you are featuring in the conference?

On the residential side, we have companies like Sunteck Realty, Mahindra Lifespace, Kolte Patil from Pune, and from the south we have Sobha, Prestige.

On the retail side we have Phoenix Mills and on the housing construction side we have companies like Nila Infra and Capacite Infrastructures. We also have some affordable housing companies like Arihant Superstructures etc. So, a combination of about 10 odd companies across the asset classes.

What are the companies that you have already talked about? Are you still a buy irrespective of the uptick that you have already seen in the prices within the real estate sector? Give me three names which you think are the top buys even now?

We are fairly upbeat on the companies which garner a huge part of their income from rental and who are having a strong balance sheet. We are very excited about Phoenix Mills which today has close to about 6 million sq ft of retail leased asset and potentially will close this year with 1 million sq ft of commercial lease asset.

In next two to three years, they would potentially grow this business by almost 30 to 40% CAGR. There is not any platform which has close to about Rs 800 crore of EBITDA generated from leased assets. The company at the value at which it trades today, is definitely one of our top picks.

The next pick is a company from down south, Prestige, which among the south-based developers, has one of the strongest leasing assets. But it is also a fast growing residential developer in the southern part of the country and they have also recently stepped into the affordable housing segment.

The third pick is a company from Mumbai, Godrej Properties, which is one of the most diversified and well managed companies in the residential housing space operating across the country through asset light model. We believe that they will be the fastest growing residential platform in the country with close to about 40% CAGR over the next three years.