Q3 sales updates, new launches point to strong outlook for realty stocks

Street expects sales momentum to continue despite the concerns on Omicron

Robust bookings in the October-December period (Q3FY22), a strong launch pipeline in the ongoing quarter, and market share gains are expected to support the stock prices of listed realty majors.

Companies that have declared their Q3 results have been the biggest gainers (five in the top six) among realty stocks over the past month. Sunteck has been the largest gainer by far rising 35 per cent, followed by Sobha, Kolte-Patil Developers and Prestige Estates Projects, with gains of 26 per cent, 22 per cent and 20 per cent, respectively. Gains for Macrotech and Oberoi Realty are 17 per cent each over this period.

Prestige Estates Projects (Prestige) and Oberoi Realty are among the companies whose quarterly update (see table) has exceeded expectations.

Prestige reported record sales, helped by demand for Prestige Avalon, Aspen & Eden Park (Bengaluru) Beverly Hills, Hyderabad, and existing inventories across geographies. The company expects strong growth in CY22 on the back of a strong launch pipeline of 15 million square feet (sq ft).

Oberoi Realty’s best quarterly performance was largely on account of the launch of Elysian project at Goregaon, Mumbai, with over 1 million sq ft of area booked.

 

Volumes and sales for the nine-month period in FY22 were Rs 3,000 crore and 1.58 million sq ft, respectively. For the full year, the company is expected to cross the Rs 4,000-crore mark.

Macrotech Developers (Lodha) also reported its best quarterly performance in the domestic space in over three years. It also recorded its best quarterly performance for London-related projects with Rs 1,900 crore in sales, with a majority (Rs 1,770 crore) coming from Grosvenor Square. The company has also reduced its debt from Rs 12,477 crore in Q2 to Rs 9,925 crore in Q3 after it raised Rs 4,000 crore through the qualified institutional placement route.

Another Mumbai-based developer Sunteck Realty reported a steady sequential gain in Q3. Bookings so far in FY22 have been higher by 23 per cent YoY to Rs 800 crore. Over the past year and a half, the company has acquired an area of 23 million sq ft spread across Mumbai and adjoining areas with a gross development value of Rs 20,000 crore.

The three Mumbai-based developers saw a good quarter despite an unfavourable base — a year ago buyers benefited from a reduction in stamp duty in the city.

Bengaluru-based Sobha posted a 17-18 per cent growth in sales volume and value with Bengaluru contributing 73 per cent to the overall volumes. During the quarter, the company launched the Sobha Avalon residential project in GIFT CITY, Gujarat, with an area of 3.29 lakh sq ft.

Adhidev Chattopadhyay of ICICI Securities says the strong performance in Q2 and Q3 (best ever quarters for sales bookings) reflects the strong demand in South India driven by hiring in the software sector accompanied by salary hikes and low mortgage rates of 6.5-7.0 per cent.

The pace of launches in Q4 is expected to continue.

Earlier this month, the country’s largest listed player in the realty space, DLF, launched its premium housing project in Delhi called ONE Midtown in 2 million sq ft of area. The 50:50 joint venture project with GIC Singapore has a potential value of Rs 4,000 crore. The company has guided for Rs 4,000 crore of sales for FY22 and has achieved Rs 2,500 crore of sales in the first half of FY22.

On the Q3 operational performance, Emkay Research says the residential real estate cycle is intact and is riding strong. There is clear evidence of broad-based demand existing across segments and project life cycles for the right product in the right market, it adds.

While most players and segments will benefit, brokerages believe that residential real estate will outperform office space despite the worries on the Omicron front.

Edelweiss Research says that despite the ongoing third wave and worries around the rate hike cycle, buoyancy in housing sales will sustain in CY22; office space supply though is expected to outstrip demand during the year, like the past two years.

Kotak Institutional Equities expects the Bengaluru market to do better than others. Say analysts at the brokerage, “We believe Bengaluru-based players are better-positioned to capitalise on the growth story in the sector — Prestige, Sobha and Brigade. Mumbai-based players — Oberoi and Sunteck — still offer value at current price points. Continued sales momentum will strengthen the investment thesis for residential real estate both in terms of an 

improving cycle, as well as higher market share consolidation.

While prospects are strong, given the uncertainty on the Omicron front, investors should await sales trajectory in Q4 and management commentary after Q3 financial results before considering stocks in the sector.