Brokerage firm Kotak Institutional Equities (Kotak Securities) believes the listed Indian real estate developers are poised to witness healthy growth due to improving sales, market share gain and rising real estate prices.
"Improving sales for the real estate sector at large, market share gains for organised developers, and rising real estate prices augur well for listed real estate developers," said Kotak in a report.
The brokerage firm highlighted that residential real estate continues to report healthy sales numbers despite the Street’s concerns about rising interest rates.
Kotak said the average prices across India increased 12 percent YoY to ₹6,879 per sq. ft in Q2FY23 from ₹6,159 per sq. ft in Q2FY22, reflecting price hikes taken by developers to accommodate cost inflation. The average prices were up 6 percent on a QoQ (quarter-on-quarter) basis.
"Industry volumes at 190 mn sq. ft marked a new high, while pricing firms up (up 12% year-on-year). Our coverage companies saw 31% year-on-year (YoY) growth in sales driven primarily by higher pricing. We continue to remain constructive on residential real estate—and are of the view that the firm price trends will likely continue in the medium term," said Kotak.
"Sales growth for our coverage was primarily driven by pricing growth. Among individual performances, Prestige maintained the pole position with sales of ₹35 bn (up 66% YoY), followed by Lodha ( ₹31.5 bn, up 57% YoY), Godrej ( ₹24 bn, down 6% YoY), and DLF ( ₹20 bn, up 36% YoY)," said Kotak.
The brokerage firm added that Sobha and Brigade also clocked strong sales of ₹11.6 bn (up 13% YoY) and ₹8 bn (down 4% YoY), respectively. Kotak said most players remain on track to achieve or surpass their sales targets for FY2023—DLF, Prestige and Lodha guided for sales over ₹80 bn, ₹120 bn and ₹115 bn, respectively.
“Street concerns on (1) impact on demand in an environment of rising interest rates, as well as (2) margin contraction due to rising input costs may not play out owing to continued market share gains and rising real estate prices amid a buoyant demand scenario,” it added.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.