Macrotech To Godrej Properties: Analysts See Upcycle In Residential Real Estate
Shares of real estate developers rose in intraday trade as brokerages said residential housing is poised for an upcycle and the commercial segment is on track to rebound from the pandemic-driven disruption.
Motilal Oswal initiated coverage on four developers—Macrotech Developers Ltd. and Oberoi Realty Ltd. with a ‘buy’, while DLF Ltd. and Godrej Properties Ltd. with a ‘neutral’. A decadal low interest rate regime, stagnant prices over the last seven years and rising income are, according to the brokerage, the key triggers driving residential affordability.
The companies exposed to Bengaluru and Pune markets, it said in a note, will outperform peers by volume and value. The Mumbai-based developers will benefit from long-term, pent-up demand.
That’s corroborated by a Knight Frank report that showed property registrations in Mumbai, India’s costliest real estate market, jumped to the highest in at least nine years in 2021. That reflects the rebound in the housing market that was grappling with a prolonged slowdown even prior to the pandemic.
Motilal Oswal also said the ongoing consolidation in the realty sector—post demonetisation, goods and services tax and Real Estate (Regulation and Development) Act—would help listed companies double their sales run-rates over the next three-four years. Supply and pricing disciplines, as well as liberal land acquisition policies are other catalysts.
According to a Jan. 12 ICICI Securities report, improved pace of vaccinations and reopening of workplaces would result in an increase in net office absorption over the next three years. “Competitive rentals, in IT/ITeS-driven markets of south India and NCR/Pune and a gradual rise in hiring could trigger a pickup in office absorption,” the brokerage said in a note, terming 2022 as “the year of office leasing recovery”.
ICICI Securities recommended a ‘buy’ on Embassy Office Parks REIT and Phoenix Mills, while has an ‘add’ call on DLF, Brookfield India REIT, Mindspace Business Parks REIT and Brigade Enterprises. The brokerage suggests a ‘hold’ on Oberoi Realty and ‘reduce’ on Prestige Estates Projects.
Shares of Macrotech Developers, Oberoi Realty and Godrej Properties gained more than 2%, while DLF rose 1.5% intraday on Tuesday. All the four stocks, however, erased gains in the final hour of the session amid broad based selling, with the NSE Nifty Realty sector ending up as the top loser.
Motilal Oswal On Its Four Picks In Realty Sector
Initiates coverage with a 'buy', and a price target of Rs 1,700—an implied return of 37%.
Remains the top pick among large caps in the sector.
The company is likely to benefit from—a Rs 20,000-crore complete and near-complete inventory, Rs 4,000-crore QIP money, monetisation of industrial land banks and ready commercial projects, and a substantial deleveraging potential through robust cash flow.
Initiates coverage with a 'buy' and a price target of Rs 1,200—an implied return of 23%.
The company has seen a significant improvement in sales velocity across projects.
Sales bookings are projected to grow at an annualised rate of 15% to Rs 5,000 crore by FY2021-24.
The company's best-in-class financial strength is likely to provide growth visibility.
Initiates coverage with a 'neutral' and target price of Rs 450—an implied return of 6%.
The company is on right track to benefit from a residential upcycle.
The company's commercial portfolio remains robust and is likely to continue to deliver 15-16% CAGR.
Initiates coverage with a 'neutral' and a target price of Rs 2,100—an implied return of 6%.
The company's exposure to all the top four residential markets augur well for growth prospects.
It has added more than 100msf of projects over five years and delivered three times rise in sales, aided by asset light strategy.
Cash generation and return on equity are expected to improve gradually through FY25.
ICICI Securities On Real Estate
Remains bullish on office asset developers.
Back-to-office plans of occupiers got delayed by a quarter owing to Omicron variant, but new enquiries have gained tracked and should fructify from April 2022.
India's long-term advantages as a high-quality office hub remains intact.
High quality talent pool, affordable rentals and high entry barriers to aid established players in the sector.