Real estate sector likely to build on record Q2 sales

But the sharp rally in realty stocks captures near-term upsides, say analysts

The real estate sector is the biggest sectoral gainer over the past month, rising 27 per cent. This outperformance is stark: The second-best sector on the returns charts is the BSE Auto index with a 14 per cent gain; the benchmark is far behind with a low-single-digit performance.

Gains for realty players have come on the back of a strong second-quarter operational performance, falling inventory levels, and improving affordability that should keep demand momentum strong. The attractiveness of listed realty players has improved a notch, given that the ongoing consolidation has led to less competition and sizable market share gains for large organised players. The near-term trigger for the sector has been the data supporting record high registrations, new launch bookings, and quarterly updates.

The property registration data in the country’s biggest residential market has been a trigger. Registrations in the first seven days of the Navratri festival were strong, indicating that the housing market is on track to record a stellar festival season, according to property consultancy Knight Frank India.

For the month of September, housing units registered in Mumbai jumped 39 per cent YOY and 15 per cent month-on-month. The performance in the month was the best in a decade. Most of the sales in September were of new units; the proportion in the first five months of FY22 was 45 per cent.

Parvez Qazi of Edelweiss Research says: “With the second wave subsiding, we believe Mumbai realty sales will revive; this will particularly benefit Godrej Properties, Oberoi Realty, Macrotech (Lodha), and Sunteck Realty.”

The September quarter updates from Oberoi Realty and Macrotech Developers reflects this. Oberoi Realty, for example, reported a 153 per cent YOY jump in value for bookings done in the quarter. It sold about 0.45 million sq ft, which is 3.4 times more than the year-ago quarter.

Macrotech, too, reported a strong rebound with the value of bookings jumping 88 per cent YOY to ~2,003 crore. This was the best September quarter performance of the company, though it was initally impacted due to Covid, monsoon, and the inauspicious Shraadh period. Given the launch pipeline, the company indicated it would be able to meet the FY22 guidance of ~9,000 crore, after clocking ~3,000 crore worth of bookings in the first half of the current financial year. The company also indicated that net debt for the India business should come down to ~10,000 crore by the end of FY22, from the current level of ~12,508 crore. While the Street is confident of the improving trajectory in the company’s operations and deleveraging, Axis Capital has a 'sell' rating on the stock, given the 43 per cent gain since lows in August.

Among the Bengaluru-based developers, Prestige Estates and Sobha, too, reported their best-ever sales/volumes for a quarter, with growth of 88 and 49 per cent, respectively, over the year-ago period.

For Sobha, in addition to a higher sales trajectory and faster land monetisation, Edelweiss Research expects cash flow improvement to be a key stock catalyst. The brokerage has a target of ~991, which offers an upside of 15 per cent from current levels.

With a strong launch pipeline of 10 mn sq ft in the second half of FY22, Adhidev Chattopadhyay of ICICI Securities believes that the momentum for Prestige Estates in residential sales shall sustain heading into the festive season. ICICI Securities has a “reduce” rating, given the 55 per cent price increase over the last three months.

Godrej Properties and DLF, too, have factored in the gains from a strong outlook with their stock prices up between 32 per cent and 48 per cent. Investors can take exposure to realty names on sharp corrections.