Even as realty stocks have been among the worst hit in the recent selloff, some brokerages and analysts have started to express their positive views on the realty sector as demand shows signs of improvement after the coronavirus pandemic.
The residential real estate cycle has turned favourable, brokerages point out. While the sales volume has increased sharply, the price increase is muted, primarily to compensate for the increase in the construction cost.
As per a report by ANAROCK Property Consultants, property registrations in Mumbai attained a record in February 2022, with the highest number of properties registered during the current fiscal year.
"According to data published by IGR Maharashtra, Mumbai saw a total of 10,379 properties registered last month - a 27 percent increase over the previous month and 2 percent more than the same period the previous year," said ANAROCK.
Brokerage firm Nirmal Bang in its March 4th report pointed out that office REIT demand is returning due to the start of offices in hybrid mode and strong hiring by IT/ITES.
"There is the beginning of the new upcycle in residential demand. The increase in demand is supported by lower interest rates, low prices, quality infrastructure and high household disposable incomes. The scale is building up in the residential segment, driven by gain in confidence among the home buyers amid the consolidation of the market," said Nirmal Bang.
Nirmal Bang has buy calls on several real estate companies, including Sobha (target price: ₹1,227), Prestige (target price: ₹617), Mindspace (target price: ₹445), Embassy (target price: ₹463 (5) Nesco (target price: ₹873), Phoenix Mills ( ₹1,279) and Brigade (target price: ₹ 619).
DLF poised for gain
Brokerages and analysts believe as the sector's outlook is improving, bigger players, such as DLF, have become more attractive as the stock looks poised for gains.
An average of 20 analysts polled by MintGenie have given a ‘buy’ call on the stock.
"The realty sector will see a strong jump in land prices due to massive liquidity infusion in the pandemic era. Companies with significant land banks are likely to benefit from it. DLF has recently shifted focus to the leasing model. Also, it has a strong land bank," said G Chokkalingam, Founder, Equinomics Research & Advisory.
Brokerage firm IIFL Securities, which has a buy call on DLF with a target price of ₹430, underscored that DLF’s residential segment has witnessed a strong turnaround over the last six quarters.
The FY22 guidance is now revised upwards by more than 50 percent with healthy growth expected in FY23 as well. New launch momentum has picked up and DLF has been able to take meaningful price increases. It is also generating healthy cashflow margins, net debt is down more than 30 percent in last two quarters," IIFL Securities said.
IIFL believes the recent correction in the stock price offers an attractive entry point as DLF’s high-quality land bank is trading close to the book value at the current market price.
Brokerage firm ICICI Securities has recently upgraded the stock to a 'buy' from an 'add', with an unchanged target price of ₹434 per share.
Even as the company has some key risks in terms of weakness in office leasing and residential demand, the brokerage is positive on the stock owing to improving outlook for the sector.
"DLF has seen strong traction in its residential business with nine-month FY22 sales bookings of ₹4,540 crore driven by the December 2021 launch of the One Midtown Delhi project. Accordingly, the company has revised its FY22E Devco sales guidance to ₹6000-6500 crore (earlier ₹4000 crore)," ICICI Securities said.
DevCo, RentCo and DLF Cyber City Developers Limited (DCCDL) are the different units of DLF.
"With the recent plotted development launch in Chennai, we model for ₹6640 crore of FY22E Devco sales and over ₹7000 crore each in FY23-24E. With office re-openings and mall consumption picking up, we expect DCCDL’s rental EBITDA to grow from ₹3400 crore in FY22 to ₹4050 crore in FY23," said ICICI Securities.
