UBS recommends buying DLF, Prestige Estates on re-rating prospects

Global brokerage firm UBS has initiated coverage on three real estate stocks, DLF Ltd., Prestige Estates Projects Ltd. and Oberoi Realty Ltd., where it sees potential upsides of up to 27% over the next 12 months.

The foreign brokerage has initiated coverage on DLF with a ‘Buy’ rating and a target price (TP) of ₹1,005 per share. The TP implies a potential upside of 18% from the current levels.

For Prestige Estates, UBS has initiated with a ‘Buy’ rating and a target price of ₹2,175, implying a potential upside of 27% from the stock’s last closing levels.

The brokerage has also initiated coverage on Oberoi Realty with a ‘Neutral’ rating and a target price of ₹2,230 per share.

While stocks have rallied significantly over the past year, UBS believes tailwinds will drive further earnings growth and trigger a re-rating in the sector.

While the brokerage does not rule out near-term softness due to a broader macroeconomic slowdown, it said that any dips would be viewed as buying opportunities.

According to the brokerage’s detailed comparison of global property cycles, the Indian property sector is structurally better placed than other markets at the time of their peaks—leading indicators of a downturn as witnessed in other markets such as poor affordability, high household leverage and unfavourable demographics (high urbanisation, ageing population, etc), are absent in India.

Key sector highlights:

Residential—multiple tailwinds to support volume growth.

Commercial—Covid-related uncertainties have eased.

UBS likes DLF, Prestige Estates, and Oberoi Realty for their strong execution track records, healthy balance sheets and exposure to multiple segments. In case of Prestige, multiple geographies as well, it said.

The stocks are trading at 3.5-4.5 times its 12-month forward price-to-book value (90-180% premium to historical average, but that said, it forecasts a topline CAGR of 26% over FY24-29, vs 3% over FY11-20).

In a recent note, another brokerage firm HSBC pointed out that the real estate sector appeared slightly sluggish in the second quarter, not due to a lack of demand but rather limited inventory.

HSBC said that approvals are crucial to achieving FY25 targets and highlighted the need for new land acquisitions to sustain growth momentum.

The foreign brokerage had maintained its ‘Buy’ ratings on Godrej Properties, DLF, Prestige Estates, and Sobha, while keeping a ‘Hold’ recommendation on Oberoi Realty.