Valuation of real estate companies


(Vivek Mashrani, CFA) #1

Dear forum members,

I am not very sure how to value a real estate company. Eg. DLF, Poddar developers, Ashiana housing etc.

Any pointers or links to relevant reports would be highly appreciated. Thanks in advance!!


(Mahendra.jain) #2

How about south based companies like sobha,prestige and even nitesh estates…


(Savishesh) #3

My personal view I maybe very wrong:

Being dependent on country’s economic growth (cyclical nature), during boom time, Real estate companies are valued on basis of land bank and during bad times on basis of cash flows and balance sheet health.

Like all cyclical sectors, in bad times debt laden companies are severely punished due to fall in earnings and cash flows and increased bankruptcy risk but when there is a recovery, bankruptcy risk recedes and they are re-rated based on their available capacity (land banks).

During bad times, companies with business model of having JV with land owners and thus having asset light model are preferred and given premium valuation but as economic recovery happens and land availability at good locations become scarce and expensive, value of having historical land bank gets more premium.


(ashit) #4

New rule may affect certain companies
Thanks
Ashit