The realty sector has been on a downward trend in the last 1 year on the back of a rate hike cycle and a decline in consumer demand. However, the sector offers strong opportunities going ahead as the rate hike cycle seems to have peaked and the inflation has also been moderating.
Macrotech Developers vs DLF: Which is a better long-term investment?
Amid this, let's find out which realty stock between DLF and Macrotech Developers (Lodha) is a better long-term investment.
Stock price trend
In the last 1 year, while DLF has been muted, up just 1 percent; Lodha has massively underperformed, tanking 28 percent in this period.
On a YTD basis, both stocks have been in the red, however, Lodha has lost over 15 percent against a 2.5 percent decline in DLF.
Just in the last 1 month, Lodha has lost 18 percent while DLF is down just 3 percent.
About the firms
DLF is a developer whose operations include all aspects of real estate development, from the identification and acquisition of land, to the planning, execution, construction, and marketing of projects. It has developed approximately 27.96 million square meters of residential area and 4.2 million square feet of retail space. The company's subsidiaries include Aaralyn Builders & Developers Private Limited, Abheek Real Estate Private Limited, Abhigyan Builders & Developers Private Limited and Americus Real Estate Private Limited, among others.
Macrotech Developers Limited is engaged in the business of real estate property development in India and the United Kingdom. It has a portfolio of housing projects, premium and luxury housing projects, and industrial and logistics park segments. Its housing projects are mainly based around Mumbai including Crown Thane (Thane), Bel Air (Jogeshwari), Lodha Belmondo (Pune), Lodha Splendora (Thane) and Casa Maxima (Mira Road). Its townships are located at Palava (Navi Mumbai, Dombivali Region) and Upper Thane (Thane outskirts). Its premium and luxury housing projects include Lodha Park (Worli), Lodha World Towers (Lower Parel), Lodha Venezia (Parel) and New Cuffe Parade (Wadala).
DLF reported a net profit of ₹513 crore, an increase of 35 percent year-on-year during Q3FY23 as the residential business delivered a strong performance and clocked one of the highest quarterly new sales bookings of ₹2,507 crore. It reported a profit of ₹379.5 crore in the corresponding quarter previous year. The Delhi-headquartered realtor’s operating revenue, however, took a hit, declining 3.5 percent YoY to ₹1,495 crore, down from ₹1,550 crore in the same quarter last year. Sequentially, operating revenue surged 15 percent.
According to DLF management, its retail business continues to exhibit healthy growth. “Occupiers’ attendance across the portfolio continues to inch upwards with gradual recovery across the office segment. While global headwinds continue to persist leading to a challenging environment, we expect demand for quality office assets at established locations should continue to garner the interest of large occupiers,” it said.
Realty developer Lodha Group, listed as Macrotech Developers, has recorded a net profit of ₹296 crores for the quarter ended December, up 6 percent from a year ago. Revenue for the quarter declined 14 percent to ₹1,775 crores.
The company reported its best-ever third-quarter pre-sales performance achieving 16 percent on-year growth at ₹3,035 crores. The company reduced its net debt by ₹753 crore to ₹8,042 crore. In spite of rising policy rates, the company said that it has also been able to reduce its interest cost consistently.
Commenting on the performance, Abhishek Lodha, MD & CEO, Macrotech Developers, said: “Combined with the consolidation on the supply side and our strategy of capital light expansion through Joint Development Agreements, we believe that we can deliver 20 percent CAGR in pre-sales and around 20 percent ROEs over the medium term.”
Which is a better stock?
Vinit Bolinjkar- Head of Research at Ventura Securities has picked Lodha over DLF.
"Upcycle in the real estate sector is expected to benefit organized players like DLF and Macrotech. Both are exploring opportunities in new geographies to gain the most out of the upcoming opportunities. Macrotech is better placed compared to DLF due to its leading position in the organized real estate market and cheaper valuation," said Bolinjkar.
He pointed out that during Covid, the market share of top developers in India started consolidating. The top-9 listed developers used to command a market share of 13 percent until FY20, which increased to 24 percent in FY23. Macrotech has a leading market share of over 5 percent, compared to 3.5 percent of DLF. Expansion in new geographies of Bengaluru and Pune has enhanced Macrotech’s market share and improved its cash flow outlook, he noted, adding that while expanding its business, Macrotech is improving its balance sheet health and reduced its total debt from ₹26,000 crore in FY19 to ₹10,500 crore in Q2FY23.
Despite these developments, Macrotech stock is trading at 16.0X FY25 EV/EBITDA compared to 39.2X EV/EBITDA of DLF, valuation discount of 60 percent, highlighted Bolinjkar. Business expansion and debt reduction will deliver a double barrel growth which will reduce the valuation gap, he said.
Ronald Siyoni, Associate Vice President at Sharekhan by BNP Paribas, also prefers Macrotech over DLF
DLF and Macrotech both offer long-term investment opportunities and have leading positions in their geographical areas viz. DFL in NCR and Macrotech in MMR, noted Siyoni.
While DLF has products skewed towards premium to luxury segments, Macrotech is focused on affordable and mid-income housing, he informed, adding that segment-wise, DLF has equal exposure in the rental business while Macrotech is a pure play on the residential segment.
"If we have to pick and choose between the two, Macrotech is a better long-term investment considering its focus on residential housing towards mid-income and affordable categories providing it the scale and depth of demand growth," he explained.
Deepak Jasani, Head of Retail Research, HDFC Securities, too, likes Macrotech over DLF.
From the upside potential from the CMP, Macrotech is a preferred option over DLF given the strong GDV, larger landbank and strong presence in regions of MMR and diversification into key areas like Bengaluru and Pune, said Jasani.
Jasani mentioned that Macrotech Developers (Lodha) is one of the beneficiaries of the real estate upcycle seen in the last few years and is also exploring new territories by entering big markets like Bengaluru and Pune. The company has already added ₹17,800 crore worth of GDV (gross development value) in 9MFY23 against the guidance of ₹15,000 crore and has already achieved 78 percent of the presales against the full-year guidance of ₹11,500 crore. Also, the company has one of the largest land banks in the country, he highlighted.
He expects the land bank gross development value on a conservative basis to be around ₹1.2 lakh crore (vs ₹1.2 lakh crore for DLF).
DLF on the other side has seen very decent growth in its residential business with some of the projects in Gurugram performing very well and Jasani expects the company to comfortably exceed its FY23 sales booking guidance of ₹8,000 crore. While its rental business, DCCDL has been flat at 89 percent occupancy, DLF has also initiated the development of a new set of malls across geographies with an aim to double retail presence in the next 4-5 years, he informed. DLF will launch ₹19,000 crore of projects over the next 18 months and will contribute ₹5000 crore/ ₹6000 crore to pre-sales in FY23/FY24E, he added.
Sunil Damania, chief investment officer, Marketsmojo, suggested a "Hold" rating for Macrotech Developers (Lodha) and a "Strong Sell" on DLF.
"Between DLF and Macrotech Dev (Lodha), both are renowned players in the real estate sector in India. While Macrotech Developers (Lodha) has its presence in the Mumbai and MMR region and has now extended to other places in India, DLF is one of the leading real estate companies in the North India region. However, long-term investments in both these companies have not managed to create significant wealth for investors. Both DLF as well as Macrotech gave negative returns to the investors in the last one year," he said.
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