>INDIAN REAL ESTATE: Residential volume slows; still see value in our Buy stocks

■ Residential data for Jan-Feb 2010 indicates a slowdown vs. 4Q09
Our analysis of recent residential data indicates a slowdown in volume in 1Q10. In Gurgaon, monthly sales fell to about 1,600 units/month in Jan-Feb 2010 from about 2,400 units/month in 4Q09. In the Mumbai region, the average was about 4,100 units/month in Jan-Feb 2010 vs. about 5,700 units/month in 4Q09. We expect sales data from the listed developers with results in April/May.

■ Maintain Buy on Unitech, DLF, Anant Raj and Indiabulls RE
The BSE Realty index is down 9% ytd and has lagged the Sensex (up 2%), which we believe reflects concerns on macro policy tightening, moderation in volumes, and a pipeline of upcoming IPOs. However, we continue to expect steady residential sales for leading listed developers such as DLF and Unitech that have not increased prices across the board as steeply as seen in some Mumbai projects. Our recent Delhi-NCR trip indicated that construction activity is picking up. We also expect office absorption to improve through 2010. We think unsold inventory levels, affordability, developer balance sheets, and discounts to RNAV are more favorable in 2010 than they were in 2008/2009. We therefore maintain our Buy ratings on Unitech (UNTE.BO), DLF (DLF.BO), Anant Raj (ANRA.BO) and Indiabulls RE (INRL.BO); our Neutral on HDIL (HDIL.BO) and Sobha (SOBH.BO); and our Sell rating on Parsvnath (PARV.BO).

■ Some stocks have already priced in falling property rates
While we expect further policy tightening through 2010, our sensitivity analysis indicates potential value in our Buy-rated stocks at current stock prices. For example, we believe Unitech, Anant Raj, IBREL, and DLF stock prices currently imply well over a 5% yoy decline in residential prices in FY11E, which we believe is unlikely unless economic growth slows down. In fact, our economist is looking for GDP growth of over 8% in FY11.

■ We revise our estimates and 12-m target prices
We revise our FY10E-FY12E EPS by -18% to +11% for our India property coverage in order to reflect key factors that include the phasing out of percentage of completion revenue/profit recognition and changes to other line items such as finance and overhead costs. We revise our 12-month target prices by -20% to +12% for these stocks: Indiabulls RE to Rs214 from Rs269; DLF to Rs425 from Rs463; Parsvnath to Rs112 from Rs118; HDIL to Rs364 from Rs379; Sobha to
Rs280 from Rs250. Our target prices for Unitech and Anant Raj remain unchanged.

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