Nifty Realty gains 2% in weak market; Prestige Estates, DLF soar up to 9%

Including today's gains, the Nifty Realty index has surged 7 per cent this week as against 0.3 per cent fall in the benchmark indices

Shares of real estate companies were in demand on Friday, in an otherwise weak market, with the Nifty Realty Index clocking decent gains in the intra-day trade. At 1:00 PM, the index was up 2 per cent, ruling as the top sectoral gainer on the National Stock Exchange (NSE) as against a 0.3 per cent dip in the benchmark Nifty50 index.

Among individual stocks, Prestige Estates surged 9 per cent in the itnra-day trade. Mahindra Lifespace Developers, Indiabulls Real Estate, Godrej Properties, Macrotech Developers, Sobha, and DLF, meanwhile, advanced between 1 per cent and 4.5 per cent. Including today's gains, the index has surged 7 per cent this week as against 0.3 per cent fall in the benchmark indices.

During the April-June quarter (Q1) of financial year 2023-24 (FY24), Gurugram-based DLF consolidated net profit of Rs 527 crore, up 12 per cent year-on-year, as compared with Rs 469 crore in the same quarter a year ago. This was, however, lower than Bloomberg's consensus estimate of Rs 617 crore.

The real estate company's revenue from operations fel 1 per cent to Rs 1,423 crore, lower than analysts' expectations of Rs 1,612 crore revenue, and as against Rs 1,442 crore last year. Retail revenue grew 12 per cent YoY on a sustained momentum. Office rentals grew 13 per cent on new net leases.

Driven by consistent deliveries and healthy pre-sales in completed projects, DLF reported a 47 per cent YoY growth in collection to Rs 1,575 crore, resulting in a strong operating cash flow (post-interest) of Rs 735 crore (up 51 per cent YoY). As a result, net debt fell to a record low of R 57 crore from Rs 721 crore in Q4FY23. Cost of debt rose by 1bp QoQ to 8.19 per cent. The management expects a net cash position by FY24-end.

"DLF's balance sheet deleveraging and re-entry into the Mumbai Metropolitan Region (MMR) market were the key highlights of the quarter. In Q1FY24, sales booking came in at Rs 2,040 crore (down 76 per cent QoQ/ flat YoY). Due to the lack of new project launches, sales performance was driven by strong sustenance sales with all-round performance across projects. DCCDL, DLF’s rental arm, posted a rental income of Rs 1,040 crore (down 1 per cent QoQ/ 13 per cent YoY). Given DLF's strong outlook on the housing segment and robust launch trajectory of Rs 19,700 crore worth of projects in FY24, re-entry into MMR opens up further opportunities for growth. We continue to maintain BUY with a target price of Rs 576," said analysts at Antique Stock Broking.

Macrotech Developers, meanwhile, reported a 34 per cent decline in its consolidated net profit to Rs 179.2 crore for the June 2023 quarter on lower income. The total income fell to Rs 1,671.8 crore from Rs 2,675.8 crore in the corresponding period of the previous year.

Mahindra Lifespace Developers, on the contrary, reported a consolidated net loss of Rs 4.27 crore for the first quarter of FY24 on lower income and higher expenses. The company posted a net profit of Rs 75.70 crore for the year-ago period.

"FY23 was a breakout year for Mahindra Lifespace Developers (MLIFE) as it clocked record residential sales bookings of Rs 1810 crore (up 76 per cent YoY). With the new MD and CEO, Amit Kumar Sinha, taking over from May’23, the company has now unveiled a strategy of reaching Rs 8,000-10,000 crore of annual residential plus industrial cluster sales by CY28 or 5x in 5 years (CY23-28E), while near-term focus remains on achieving its guidance of Rs 3,000 crore of residential sales by FY25E. With the company having 9 planned launches in FY24 having a GDV of Rs 3,500-4,000 crore, we estimate FY24E and FY25E residential sales bookings of Rs 2,310 crore and Rs 2,710 crore, respectively. We retain our BUY rating with an unchanged target price of Rs 565/share," said analysts at ICICI Securities.

Sector Outlook

That said, housing sales sustained its strong momentum with absorption up 22 per cent YoY (down 1 per cent MoM) in June, 2023. Bengaluru led the charts with demand rising 34 per cent YoY. On a quarterly-basis, new sales rose 22 per cent YoY (down 8 per cent QoQ). Hyderabad (up 29 per cent YoY) was the major gainer here. H1CY23 demand was up 22 per cent YoY. YTD absorption is up in all the cities and has surged the most in the NCR (up 45 per cent YoY), followed by Kolkata, Chennai and Hyderabad.

On the other hand, new project launches continue to be soft and were down 15 per cent MoM/28 per cent YoY in June, 2023. Supply in Q2CY23 slid 23 per cent QoQ/5 per cent YoY with the NCR and Kolkata being the worst hit. However, H1CY23 launches are up 9 per cent YoY, surging the most in the NCR (up 186 per cent YoY) followed by Kolkata and Chennai. Supply was down YoY in the MMR.

"As highlighted, RERA-driven consolidation is throwing up growth opportunities for organised players. We believe absorption would continue to be healthy aided by the high levels of affordability despite the recent increase in mortgage rates/housing prices. However, launches shall remain contained due to liquidity constraints. We believe realty stocks are attractive from a medium-term perspective given rising consolidation and improving cash flows. DLF (BUY) and Brigade (BUY) remain our top picks in the housing space," said Nuvama Institutional Equities in its recent note.