Kotak Institutional Equities analysts continue to remain positive on the real estate sector following strong earnings and operational performance even though key stocks have outperformed the broader market.
“Valuations for most residential real estate stocks have risen to 7-11X implied EV/EBITDA on FY2024 expected pre-sales, at the higher end of the past trading range,” Murtuza Arsiwalla, a research analyst at Kotak Institutional Equities, has said.
“This reflects the strong underlying business performance as well as changing investor interest, with the announcement of ‘rate pause’ addressing potential risks to demand previously seen by investors. We continue to remain constructive on the sector owing to strong operational performance by the players.”
In the past six months, Nifty Realty has zoomed 15 percent, while in the last month, the index has gained 9 percent.
Macrotech Developers, Prestige Estate Projects, Brigade Enterprises and DLF are among the names trading close to their 52-week highs.
The perception of investors has changed with strong earnings performance from key real estate players. Research houses have said that the strong momentum in sales has broken previous records.
Kotak said its coverage universe witnessed strong sales growth of 45 percent year-on-year (YoY) and 60 percent quarter-on-quarter (QoQ) to Rs 23,600 crore in Q4FY23, leading to a market share of 13.3 percent on an all-India basis. Across top-3 metros, the market share stood at 25 percent in Q4FY23.
“We highlight that DLF reported the strongest show in FY2023, with pre-sales doubling to Rs 15,000 crore. GPL saw 56 percent YoY growth in pre-sales to Rs 12,200 crore, while Lodha, Sobha and Brigade saw YoY growth of over 30 percent,” Arsiwalla said.
Oberoi (Realty) saw relatively weak performance, with a 17 percent YoY decline in sales, while Sunteck missed management guidance by 10 percent.
Fresh supply being absorbed
Real estate consultant Anarock said of 1.14 lakh units sold across the top seven cities in Q4FY23, over 41 percent were fresh launches. In the same period in pre-COVID 2019, of the approximately 78,520 units sold, 26 percent were newly launched.
Among the top cities, Hyderabad saw highest absorption of fresh supply. Approximately 14,280 units were sold in the March quarter and around 46 percent were fresh launches, while in 2019, the share was just 28 percent (of total 5,400 units sold)
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