Top listed developers sitting pretty

Experts expect further market share gains; cash flows and collections likely to improve

Experts expect further market share gains; cash flows and collections likely to improve.

Record bookings in the December quarter, led by demand recovery, a sharp jump in their market share, a strong pipeline of projects, and easing leverage concerns -- the country’s largest real estate developers never had it so good in recent years. With demand coming back, the sector, which has gone through a prolonged slump, may end FY21 in much better shape than at the start of the year.

Such was the surge in demand in favour of larger players due to market consolidation and credit availability that after registering 525 per cent YOY decline in the first two quarters of FY21, the top 10 listed players saw a 61 per cent gain in the December quarter. This not only wiped the deficit of the first half of the year, but also helped them post 13 per cent growth for nine months ended December.

Most listed developers saw a strong momentum, with Bengaluru-based developers Brigade Enterprises, Prestige Estates Projects, and Sobha reporting their best-ever sales in the residential segment; Oberoi Realty, too, had a strong quarter, driven by low home loan rates, pent-up demand, subvention schemes, and stamp duty cut.

Given the broader realty market is struggling to get its act together, there are market share gains for top players. The market share of the top 10 listed realty players has nearly doubled from 11 per cent of sales in FY20 to 19 per cent in FY21, so far. The share of reputed developers (including unlisted) went up from 17 per cent in CY17 to 44 per cent in CY20.

Experts believe market consolidation will strengthen as the current environment gives larger organised players room to invest in land parcels, take over projects at distressed valuations, and expand their presence. Mahi Agarwal, assistant vice-president and associate head, ICRA, says: “This acceleration in consolidation is expected to continue, with most large organised players having established brands, low leveraged balance sheets, and adequate liquidity garnering increased market share.”

Despite the surge in sales, analysts expect sector volumes to fall 35-40 per cent in FY21, though the recovery is expected to be strong with growth in the 25-40 per cent range. This should take total sales to 85-90 per cent of FY20 levels. “In addition to moderate price correction, low interest rates and stamp duty reduction in Maharashtra, the affordability of homebuyers has increased due to discounts and freebies in the 3-10 per cent range,” says Isha Chaudhary, director, CRISIL

Research.

CRISIL’S calculation of minimum annual household threshold income to buy a house in a city shows affordability has improved by up to 30 per cent for homebuyers in the top 10 cities in five years because of lower interest rates and softer capital values.

Increased sales velocity has also improved collections which — combined with moderation in project spends and curtailed overheads — are likely to result in operating cash flows improving and reaching pre-covid levels in FY22. While customer collections for top listed developers are down 20 per cent for nine months of FY21, they have seen a rising trend in Q3 and are up 13 per cent YOY.

This should continue in the near-term given the project pipelines of developers. Godrej Properties, for example, believes the current (March quarter) will be its strongest, with 12 launches. The Mumbai-based developer with a pan-indian presence is expecting bookings of $1 billion (~7,360 crore) in FY22.

The largest listed developer, DLF, has a strong launch pipeline of 14.5 million square feet, spread over two years of which 5.7 million square feet is in the mid-income category. Sobha, which gets over 70 per cent of business from the Bengaluru market, has outlined a launch pipeline of over 14 million square feet. Of this, as much as 10 million square feet is to be launched by the first half of FY22.

Oberoi Realty — which posted the fastest growth in new bookings, as well as collections in the December quarter — is planning to launch projects on 5 million square feet in the next few months at Goregaon, Borivali, and Thane.

Given the bookings and launch trajectory, easing leverage concerns and outlook, listed realty stocks have been outperforming the overall market. The BSE Realty index is up 39 per cent over three months, as compared to an 11 per cent gain for the Sensex.

In the listed pack, Phoenix Mills is the top pick of brokerages, followed by Prestige Estate Projects and Brigade Enterprises, on residential sales, an uptick in leasing activity, as well as a recovery in the retail (mall) segment.