India Real Estate in Distress

Indian Infrastructure and Real Estate Groups have seen their stock prices crash as losses have ballooned and their debt coverage
ratios have dived. Infra stocks are trading for extremely low multiples, as many of them are restructuring their massive debt burdens. These companies went on a spending spree using debt in the last 5-6 years leading to a huge debt buildup. But with infrastructure projects mired in long and costly delays, the regular interest outgo have impoverished these infrastructure companies. GVK, GMR, Lanco, Jaypee groups are some of the conglomerates facing a huge problem of debt. These companies are now selling their prized assets at a cheap price to reduce their billions of dollars in debt. Well capitalized Indian and foreign companies are taking advantage of their distress to buy cherry picked assets for a bargain price.

Indian RE Firms Resort to Distress Sale

These companies were not willing to sell these assets hoping for an economic recovery. But with the country entering a step down GDP growth phase, these companies have now realized that it makes sense to get out before a bigger crisis erupts. Jaypee group has sold off its cement plants in Gujarat to the Birla group for a cheap price and is now looking to sell its hydropower assets to a MidEastern Group. GMR has also sold off a toll paying road to a PE player and is looking to further de-leverage. India’s biggest real estate group DLF has sold off a number of assets and Suzlon has done the same. Even with this selling, the prospects of these companies don’t look good in the short term. Only a new government can create some momentum to clear and fast track the infrastructure projects.  Till then I would not recommend taking a long position in these stocks. They will see dead cat bounces in the stock market but a prolonged bull run for these stocks seem still some time away. Lower interest rates, better governance, cleaner management are some of the catalysts for these stocks. Cheap valuations are a good enough reason to buy these stocks.