Sales momentum, portfolio reinforces outlook for Macrotech, Oberoi Realty

The stocks of Mumbai-based developers Macrotech Developers (Lodha) and Oberoi Realty have been the highest gainers among realty stocks over the last month, rising 31 per cent each.

Strong ongoing sales trends in the core market of Mumbai, record bookings in the March quarter as well as healthy guidance for FY25 led to the gains for the companies which get a majority of their revenues from the country’s financial capital, said experts.

The two stocks have outperformed their large realty peers such as DLF and Mumbai-based Godrej Properties, which have delivered low-to-mid single digit returns over this period. Among other peers, while Prestige Estates Projects has delivered healthy returns, it is still about 3 percentage points lower than the return toppers from this sector.

The near term trigger is a 22 per cent rise in housing units registered in Mumbai for May to 12,000 units, the highest for the month in the last twelve years. A slight increase in average ticket size helped the overall value of the units registered rise to 24 per cent to Rs 17,200 crore.

For the January to May period, registrations in the city at 60,819 units were 17 per cent higher over the year ago period. Sales by value were up slightly at 2 per cent to Rs 81,000 crore.

Parvez Qazi and Vasudev Ganatra of Nuvama Research believe that the buoyancy in sales would sustain, driven by robust business development targets, pickup in launches aided by cash flow improvement, interest rate stabilisation, diversification and market share gains.

They expect Mumbai-based organised developers such as Macrotech Developers (Lodha), Oberoi Realty, Godrej Properties and Sunteck Realty to benefit from strong housing sales in Mumbai.

For the larger Mumbai-based players, the recent sales performance and outlook have been strong. Lodha reported its best-ever quarter in March in terms of bookings. At Rs 4,230 crore, bookings were up 40 per cent Y-o-Y and were aided by 5 million square feet of launches. The company ended FY24 with bookings of Rs 14,500 crore which was in line with management guidance.

For FY25, the company expects bookings of Rs 17,500 crore, which is a 20 per cent growth Y-o-Y. This would be driven by volume growth from new launches and a modest price increase. The initiatives on the business development front and construction spends are likely to rise significantly over FY25. However, the company has maintained its guidance of less than 0.5 times net debt to equity, 30 per cent margins and a return on equity of 20 per cent by FY26.

IIFL Securities has an add rating with a target price of Rs 1,250 and believes that sustained increase in land pricing with infrastructure development at Palava will aid future cash flows and net asset value of the company.

After a steady FY24, Oberoi Realty has a strong asset base which is expected to monetise over the next couple of years. In the last financial year, the company has built its development portfolio comprising the Gurugram project (14.8 acres) and Mumbai/Thane properties, including Adarsh Nagar, Worli (0.62 million square feet), Tardeo (0.26 million square feet), and Pokhran Road (6.24 acres). The properties have a gross development value of Rs 13,000 crore to Rs 15,000 crore.

In the near term, the company is expected to launch its Pokhran Road project which should drive volumes in FY25. The majority of launches would be in FY26 and would include Tardeo, which is a redevelopment project as well as Gurugram, and Adarsh Nagar.

Rahul Jain and Tanvi Tambat of Elara Capital highlighted that unsold inventory in high velocity micro markets of Goregaon and Borivali for Oberoi Realty is estimated at Rs 18,000 crore. This alone offers earnings visibility of four years at FY24 pre-sales run rate, they added.

In addition to this, the brokerage highlighted that the company has maintained financial discipline through cycles as evident in its fortress balance sheet and industry-best net gearing ratio of less than 10 per cent. Elara Capital has a buy rating with a target price of Rs 2,350 per share.