he boom in the Indian real in these realty stocks through
estate sector is reflecting mutual funds.
itself in the share prices
of realty companies, which have Of all the realty firms, it is
gone up anywhere from 3 to Unitech that has seen the maximum
40-times in the last one year. jump in share prices, a growth of
The per share earnings (EPS) of over 40-times, from Rs. 10 in
these companies has also November, 2005 (after adjusting
improved, but not to the extent for bonus and share split) to Rs.
of the booming realty that is 405 on Friday, last week. Today,
reflected in the prices of their the stock is quoting 95-times of
shares. the pro-rata 2006-07 EPS of Rs.
4.28, when the EPS was Rs. 2.14
Merchant bankers claim this in the first half of 2006-07.
growth is the result of re-rating
company share prices by the But, the highest price to earning
market, after taking into account ratio has been witnessed by
future cash flow, on the basis of Mahindra Gesco, which at present
the huge land stock acquired by is trading at 202 times of its
them. EPS of Rs. 4. The company’s net
profit declined in the quarter
To merchant bankers it looks like ending September 2006, against
the 1999-2000 glory days of real the previous quarter ending June
estate stocks are back. Managing 2006. However, year-on-year
a realty firm’s public offering, profit increased by 20%, even as,
a senior merchant banker advises a senior merchant banker argues,
investors from putting money in this growth in net profit can not
stocks that quote huge multiple justify such a huge multiple
underlying earnings. Instead, earning price. The book value of
they would be better of investing its share stands at only Rs.
41.20. The last one-and-a-half their earnings of 2006-07.
year has seen the share prices of
these companies move up, till May Market sources justify these
2006, when the stock market fell prices, saying the real estate
sharply. sector is very active and
profitability of these companies
The market started moving up in will substantially improve in
July and the share prices also next financial year. This will
started rising. In the bull run bring down the price to ratio
of the last three months, except earning to a decent level of
for Unitech, none of the other around 20. But, firms like
realty firms saw their share Mahindra Gesco can only achieve
prices touch the pre-May 2006 this if for the next three years,
crash level. their profits keep on doubling
every year. But, the company’s
D.S. Kulkarni, which raised funds performance in 2006-07 so far,
from the equity market through a has not been encouraging. The
follow up on public issues, is first six months saw its net
quoting Rs. 286 at a discount profit rise 34% to Rs. 6.18-crore
from its offer price of Rs. 300 against the same period last
in May 2006, with the stock year.
reaching a peak of Rs. 446 on May
3, the day the issue closed. At On the other hand, Unitech has
present, the company’s share posted a good growth in the first
price is quoting at 15.25 times half, and saw its net profit go
of its pro-rata 2006-07 earnings. up 7.5 times to Rs. 174-crore.
According to a senior merchant
Similarly, quoted share prices of banker, the key factor is,
Ansal Buildwell and Ansal whether the company will be able
Properties are 16 to 27-times to sustain the same growth.
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