Real estate demand momentum to persist; Lodha, Godrej Properties among Motilal Oswal's top picks

Motilal Oswal has identified several top picks in the real estate sector, recommending a 'buy' rating for Macrotech Developers (Lodha), Godrej Properties, Prestige Estates Projects, Brigade Enterprises, and Sobha Ltd

Motilal Oswal is bullish on several real estate stocks including Macrotech Developers, Godrej Properties, and Prestige Estates Projects, driven by the robust growth in India's residential real estate sector.

The real estate sector has maintained strong momentum, with a 14 percent increase in absorption across the top seven cities in FY24 and a 10 percent rise in realizations.

Despite the supply lagging behind demand, with 5.47 lakh units in FY24 and an inventory overhang of 11 months, gradual price hikes are expected to keep the demand momentum strong, said Motilal Oswal.

With a favourable demand-supply balance, healthy pricing power, and ongoing market consolidation, the domestic brokerage firm anticipates continued buoyancy in the real estate sector over the next two to three years, making these stocks attractive investment opportunities.

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Motilal Oswal analysts believe that as the real estate industry sustains its growth rate of 10-15 percent, listed players are poised to report growth at least 10-15 percent higher than the industry's average.

This is due to their increasing market share and consolidation within existing markets, along with expansion into new ones.

The favourable demand-supply balance, comfortable inventory positions, healthy pricing power, and opportunities for market consolidation suggest buoyancy in the real estate sector will continue for the next two to three years. Accordingly, Motilal Oswal remains constructive on the sector.

Despite the Nifty Realty index tripling since the RBI paused rate hikes in April 2023, it has only just caught up with the strong pre-sales performance reported by companies since the beginning of CY22.

The index is currently trading at a 10 percent premium to pre-sales growth. This indicates that a significant portion of the anticipated growth over the next few years has yet to be reflected in valuations, said Motilal Oswal.

Most of the listed peers have a very strong launch pipeline and are targeting at least two new markets apart from their home market, which will
lead to a further pick-up in the market share of the listed peers, the brokerage said, adding that if companies are able to deliver similar churn like FY24, pre-sales are expected to be 9-10 percent higher than guidance.

"As collections coincide with the existing pre-sales rate, operating cash flow (OCF) will further scale up and, coupled with a healthy balance sheet, will provide a strong headroom to fund growth opportunities, enabling further growth visibility," Motilal Oswal in a recent report.

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Motilal Oswal has identified several top picks in the real estate sector, recommending a 'buy' rating for Macrotech Developers (Lodha), Godrej Properties, Prestige Estates Projects, Brigade Enterprises, and Sobha Ltd.

These companies are well-positioned to capitalize on the sector's positive trends and market opportunities, it said. Meanwhile, the brokerage maintains a Neutral rating on DLF Ltd, Mahindra Lifespace Developers, and Oberoi Realty.

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