Rising interest rates and slowdown in the economic activity globally was expected to dent the momentum of the real estate sector in India. Latest number proves otherwise. The initial uptick in the realty sector that we witnessed after the first wave of pandemic was more due to latent demand and fiscal incentives given by various state governments. It was expected that once these fiscal incentives go, the realty sector will lose its mojo and will go into slumber. Nevertheless, looking at the latest business updates from most of the industry players shows that the momentum is still there and likely to continue. Industry leaders are also very optimistic about the future of the industry.
India’s real estate sector is witnessing a healthy increase in demand in 2022 and this momentum is expected to hold for the rest of the year. From commercial spaces to the residential market, the overall market outlook is a bright one for the real estate industry. Vikas Oberoi, CMD, Oberoi Realty summarized the scenario when he said that “with the increased economic activity and a strong consumer sentiment towards home ownership, there is a consumption led momentum across all residential projects. Our other business portfolios – commercial and retail – have also bounced back. With people coming back to office there is a strong impetus to the commercial segment. Our retail portfolio has also demonstrated a commendable performance with footfalls going back to and exceeding pre-Covid levels.” On the forthcoming event he said that “we are committed to deliver value to all our stakeholders and believe in developing projects that strive to offer an enhanced, sustainable and healthy lifestyle. With a strong pipeline of new launches and a capability to design space that meets every need of the customer, Oberoi Realty is placed in a leading position in the real estate sector”.
In last one year, despite market being very volatile, we see that BSE Realty index is up by 12 per cent compared to five per cent by BSE 500 in the same period. After underperforming for first few months of the year, BSE Realty has once again started to outperform. In last one month it has gained by 15.5% against the BSE 500, which moved up by 5.7 per cent in last one month.
It was expected that rising inflation and interest rates will dent the growth of real estate sector in India. Nonetheless, latest sales figures from the industry leaders do not show any major signs of slowing down in demand. Globally we have seen interest rate moving up. World’s largest economy has moved up swiftly and has raised key policy rates by 150 basis points in last few months. Even domestically interest rates have moved up. RBI has hiked interest rate by 90 basis points in the last two monetary policies. In May, RBI raised the repo rate by 40 basis points and further increased it to 50 basis points in June 2022 policy meeting.
Post the recent interest rate hikes, the loan eligibility has reduced, resulting in a larger down payment funding requirement. Since most of the real estate transaction is financed, it was expected that sales of these companies will come down. Nonetheless, we saw few companies that have updated their quarterly business numbers have shown a resiliency in the demand on yearly basis. Although as the RBI is set to announce hike in interest rates in its monetary policy on August 5, some analysts fear an upward revision will impact the sentiments of home buyers, who have remained positive despite the last set of revisions that led to a rise in home loan interest rates.
But on the side all-time high affordability is still aiding demand. We believe developers should not go for major price hikes now and support recovery. We see good number of launches in H2YF23 to help developers return to the growth path, supported by receding commodity and economic headwinds.
The residential sector recorded a nine-year high in sales volume in the first half of 2022 (January–June 2022). The sector saw annual growth of 60 per cent compared to the first half of 2021 from 99,416 to 158,705 housing units across the top eight cities, according to a report by Knight Frank India. With 26,677 units sold, Bengaluru is the third-largest residential market in the country, after Mumbai (44,200), and National Capital Region (29,101). The weighted average price of residential units in Bengaluru increased by nine per cent year-on-year (YoY) to Rs 5,358 per sq ft with South Bengaluru remaining the largest market accounting for 38 per cent sales.
In another report by Edelweiss Securities, Mumbai’s real estate sector reported a 15% year-on-year growth and 14% sequentially with 11,340 new registrations in July alone. This is in spite of banks and housing finance companies raising interest rates on home loans by 0.9% since May this year. Mr. Rahul Talele, Group CEO, Kolte-Patil Developers Limited was very optimistic when he said, “We have started the year on a strong note, continuing the momentum achieved in the last financial year into the first quarter of FY23. With positive traction in volumes and substantial contributions from a range of projects across locations in Pune, Mumbai and Bengaluru, we are well poised to deliver solid growth during the current year. This will be supported by sustenance sales traction in current projects as well as several new launches that are planned over the next few months.”
For real estate companies, sales volume growth is likely to be a function of new launches. Commercial leasing is expected to see marked pick up while retail (malls), hospitality are anticipated to continue to post stronger numbers with consumption showing healthy uptick. There is also a new trend emerging, quality living is gaining traction with larger, organised, gated communities’ projects witnessing strong rental demand and pricing, which is higher than pre-COVID levels. Renewals are happening at 15- 20% higher than pre-COIVD rates for Grade A, gated communities. This augurs well for organised developers as the investor market may pick up on hardening rental yield.
Commenting on the performance of Q1 FY2023, Mr. Pirojsha Godrej, Executive Chairman, Godrej Properties Limited, said: “Having delivered our highest ever Q1 bookings of 2,520 crore, we are on track to meet our FY 23 objective of achieving 10,000 crore booking value. Despite elevated inflation and recent interest rate hikes, the real estate sector has been exceptionally resilient. The sector is likely to continue to strengthen in the quarters ahead and we will be focused on significant market share gains through new project acquisitions and launches. We have a robust launch pipeline for rest of the year which will help us build on the current momentum.”
The real estate sector is set to experience good growth going ahead. Certain projections state that the sales momentum is expected to increase in 2022 as prospective homebuyers will continue to prefer bigger homes, better amenities and attractive pricing will keep them interested in sealing the deals. Meanwhile, as work resumes in offices, the recovery in the commercial sector and flight-to-quality trend is expected to keep rents stable to increase in 2022. Additionally, the luxury housing market is poised to touch new heights in the coming year.
The government continues to prioritize the affordable housing segment and parallel looking at ways to strengthen the existing financing systems to provide liquidity to stuck real estate projects. In the first week of December 2021, the Government of India extended the deadline to provide pucca houses to all families in rural India to 2024. The Cabinet decided that the flagship rural scheme, Pradhan Mantri Awas Yojana-Gramin will be provided Rs 2.17 lakh crore in additional Central and State funding to achieve its target of building 2.95 crore houses.
According to a report by real estate consulting firm CBRE South Asia, “Capital inflows into the Indian real estate sector during January-June 2022 jumped 42 per cent sequentially and 4 per cent year-on-year to $3.4 billion. On a quarterly basis, the capital inflows April-June 2022 stood at $2 billion, an increase of 47 per cent compared to a year ago.” The report, titled ‘India Market Monitor-Q2 2022’, said institutional investors led investment activity with a share of nearly 65 per cent, infusing liquidity primarily in brownfield (existing) assets, whereas developers (31 per cent) continued to prioritise Greenfield (fresh) investments. All these factors will make real estate sector happening in coming future. We believe some of the organised and listed players are going to benefit more than others.
In the following pages we have selected seven such companies where we feel investors will get value for their money.
Companies
Oberoi Realty Ltd.
Making a Comeback in the Office and Retail Asset Space
Oberoi Realty is engaged in the activities of Real Estate Development and Hospitality. On the real estate development front, the Company develops residential, commercial, retail and social infrastructure projects. Company’s primary focus is on the Mumbai Metropolitan Region and it is having business vertices of residential and commercial real-estate. FY22 was a defining year for Oberoi Realty, as it registered the highest-ever annual presales of Rs 4000 crore and reported the highest-ever annual profit of Rs 1000 crore. There are multiple tailwinds that could lead to a further rerating of the company. It has a strong sales pipeline for the next 12 months, with new towers expected in Borivali and Goregaon besides Thane launch, targeted for Q2FY23. Further, the unsold stock monetisation in Mulund and Worli could add to overall sales. In its rental portfolio, it is rethinking making a comeback in the office and retail asset space and is expected to take decision on Glaxo Worli retail/office soon. Company is also looking at rental asset development opportunities in NCR and southern markets. It already has FSI in Mulund, Borivali, and Thane for office asset development.
Company delivered a steady 1QFY23 in terms of bookings, which grew 348 per cent YoY to Rs 760 crore. Elysian (Goregaon) and Eternia (Mulund) projects gained further traction, with bookings of 39 units (v/s 27 units in 4QFY22) and 30 units, respectively. The pipeline for FY23 remains strong as it is planning to launch the first phase of its Thane project, along with a tower each at its Elysian and Sky City. Coupled with a restart in sales at Three Sixty West (Worli), it is expected that company’s pre-sales to increase by 22 per cent YoY to Rs 4800 crore in FY23.
Kolte-Patil Developers Ltd.
Good Improvement on Every Matrix on Yearly Basis
Kolte-Patil Developers (KPDL) constructs and develops residential projects, commercial and retail projects, IT parks, and integrated townships; rents immovable properties; and provides project management services for managing and developing real estate projects. The company markets its projects under the Kolte-Patil and 24K brands. Kolte-Patil Developers Limited was founded in 1970 and is headquartered in Pune. The company has developed and constructed over 50 projects including residential complexes, integrated townships, commercial complexes and IT Parks covering a saleable area of ~20 million square feet across Pune, Mumbai and Bengaluru.
KPDL reported its highest-ever collections in the last three decades, with Q4FY22 collections at Rs 500 crore up by 18.8% QoQ and FY22 collections at Rs 1570 crore, up by 39.5% YoY. Operating cash flow was at Rs 170 crore. Consolidated net debt reduced by Rs 41.2 crore in Q4FY22 to Rs 130 crore, with net D/E at 0.14x compared to 0.19x as on Dec-21. The company signed ten projects (two completed, three recently launched, five future projects) till date at prime locations across the cities.
KPDL has registered good growth in all parameters in the first quarter of FY23. On every matrix it has seen good improvement on yearly basis. Volume has increased by 53 per cent on yearly basis to 0.61 million square ft. The side table highlights the growth achieved by the company.
Brigade Enterprises Ltd.
Expanding the Portfolio – Warehousing, Logistics & Data Center
Brigade Enterprises Limited is engaged in developing residential, commercial and retail properties primarily in Bangalore and Mysore, and has also developed and is managing a number of serviced apartments under the brand, Brigade Homestead. They have a uniquely diverse multi-domain portfolio that covers property development, property management services, hospitality and education. The company is also engaged in the business of Real estate, Hospitality, Lease Rentals.
Brigade Enterprises presents a unique investment opportunity in a structurally strong southern real estate market. The mixed-use developer is firing from all cylinders with residential, commercial and hospitality segments delivering strong performance. Over the next few quarters, company is likely to deepen its presence in Chennai and Hyderabad markets while consolidating further in the Bengaluru market. Hospitality and mall asset monetisation shall release further cash to grow residential and commercial businesses.
For FY22 the Company achieved best ever presales of 4.7msf, with sale value of Rs 3000 crore, a growth of 9% Year on Year. Average realisation was up 7% Year on Year to Rs 6,411 per square foot. In rental business, 1msf was leased during the year and the company achieved 0.5msf of renewals at 14% escalation. Consumption in malls surpassed pre-COVID levels from mid-February 2022 and, as a result, retail revenue increased by 64% in FY22. Total collections were the highest ever at Rs 4000 crore, an increase of 51% Year on Year.
For residential segment, the overall outlook remains positive, with focus on land acquisition in key markets of Bengaluru, Chennai, and Hyderabad. The company is expanding the business portfolio by initiating a warehousing and logistics and data center vertical, which is in the preliminary stages of development and will lead the future growth of the company.
Sobha Limited
Good Visibility of Launch Pipeline in FY23 & FY24
Sobha Limited, incorporated in 1995, is a real estate developer engaged in construction to operations of townships, housing projects, commercial premises, and other related activities. The company is also engaged in manufacturing activities related to interiors, glazing and metal works, and concrete products. Company has categorized its revenue into three categories: that is Real Estate contributing 60% of revenue: It includes the sale of housing and commercial leasing of properties. Next segment is, Contract and Manufacturing contributing almost 30 per cent of total revenue and comprises the development of commercial premises and other related activities. Company‘s corporate clients include LuLu group, Biocon, Dell, Bosch, Syngene, Taj Hotels, HCL, ITC Hotels, Huawei Technologies, and many more.
It is the only company in the sector to have a full-fledged backward integrated model of operations. Under the backward integration model, the company has three manufacturing divisions – Glazing and Metal Works, Interiors and Concrete Products which are used for the manufacturing of houses. It also has a very high-end mattress manufacturing unit under the brand name Sobha Restoplus, started in 2007.
Sobha has a presence in the residential segment in 10 cities and its overall footprint extends to 27 cities in 14 states across India. However, the company derives 67% of the revenue only from Bangalore.
Owing to the strong result, the company improved its net debt to equity ratio from 1.3x in FY21 to 0.9x in FY22. Even the ROCE of the company improved to 27.7% in FY22 from 12.3% in FY21. Consolidated EBITDA stood at Rs. 204 crore that grew by 36% YoY with margin of 28% (increased by 1% YoY). The company sees good visibility of launch pipeline in FY23 & FY24 to cater to the elevated demand in times ahead.
Godrej Properties Ltd.
Leasing is Expected to Pick Up in FY23
Godrej Properties Limited, together with its subsidiaries, is primarily engaged in the real estate construction, development, and other related activities. It develops residential, commercial, and township projects. It was incorporated in 1985 and is based in Mumbai, and subsidiary of Godrej Industries Ltd. The company is currently developing projects that are estimated to cover more than 89.7 million square feet.
Godrej Properties registered strong revenue growth of 207.6% in Q4FY22 reaching Rs. 1,331 crore, an increase of 377.3% QoQ amid pickup in demand in the housing market, with launch of 9 new projects during the fourth quarter of FY22. The company managed to ride back despite being severely hit by the second wave of pandemic. EBITDA came in at Rs 258 crore against a loss of Rs 154 crore in the prior year period. EBITDA margin came in at 19.4%, helped by higher sales realisations and comparatively lower costs. Consecutively, reported PAT stood at Rs 261 crore vs. a loss of Rs 192 crore in Q4FY21.
In total, 16 new projects were launched by the company during FY22. It added 6 new residential projects (2 in NCR, 2 in Bangalore, 1 each in MMR and Pune) with saleable area of ~9.3mn. sq. ft. Moreover, it sold 9,121 homes with an area of ~10.8mn. sq. ft. in FY22.
Company’s annual residential collection stood at ~Rs 6,907 crore despite half yearly collection getting severely hit due to pandemic. During FY22, company leased ~1 lakh sq. ft. with average monthly rent of Rs 160/sq. ft. of leasable area. With recovery in economic activity, leasing is expected to pick up in FY23.
In FY23E, company has a strong pipeline of 21.4msf (10.3msf in upcoming projects and 11.1msf from new phases in existing projects) and expects to register very good sales bookings.
Prestige Estates Projects Ltd.
Targeting Gross Sales Bookings of Over Rs10,000 Cr in FY23
Prestige Estates Projects Limited (Prestige/PEPL) is one of the largest real estate developers with well-established presence in India’s high-growth locations. Its residential properties cater to premium and mid-segment customers. Spread across multiple cities. Its residential projects span townships, apartments, luxury villas, mansions, row houses, town homes, golf developments and plots. Over the years, it has developed several state-of-the-art, Grade A office spaces that are located in prime locations within cityscapes. Its office portfolio offers world-class design and space economy. The malls built and operated by Prestige have become landmarks of major Indian cities, housing several international and domestic brands. In association with global players such as Hilton, Sheraton, Marriott, and Oakwood, it builds and operates modern hotels, located at prime locations.
As per PEPL management, the company has done an official launch of three Mumbai projects (Mulund/Byculla/Bandra) spread across 8msf in May’22 which have met with strong response and with large planned launches in Noida/Chennai. In FY23, the company is targeting gross sales bookings of over ~Rs10000 crore in FY23 as well which hinges on the success of Mumbai launches which may contribute ~Rs3000 crore of annual sales bookings.
The company’s share of balance committed capex across upcoming annuity projects across South India and Mumbai is Rs2320 crore as of March 22 with Rs1600 crore for offices, Rs170 crore for malls and Rs 540 crore for hotels. As of March 22, the company has an exit rental income of Rs140 crore for offices and Rs 80 crore for malls and estimates incremental rental income of Rs 530 crore from offices and Rs140 crore from malls.
Anant Raj Limited
Sales in FY22 Increased Almost 85 Per Cent
Anant Raj Ltd. was incorporated in 1985 as Anant Raj Clay Products by Ashok Sarin. It is primarily engaged in the development and construction of IT parks, hospitality projects, SEZs, office complexes, shopping malls and residential projects in the State of Delhi, Haryana, Andhra Pradesh, Rajasthan and NCR. The Company has successfully developed more than 20 MSF of real estate projects.
The company reported net sales of Rs 462 crore in FY22, up from Rs 250 crore in FY21. This is an almost 85 per cent increase. In FY22, increasing transactions in both the residential and commercial categories drove the rise. EBIDTA was Rs 76 crore in FY22, up from Rs 35 crore the previous year. That represents an increase of more than 117 per cent, reflecting the impact of its low debt and low capital expansion approach.
Since fiscal year 2018, the company has regularly reduced its debt. In addition, its PAT grew four-fold from Rs 11 crore in FY21 to Rs 55 crore in FY22. The company’s cash conversion cycle has been reduced from 64 days in FY21 to 17 days in FY22, which helped it to lower its net working capital and reduce the interest burden. It also saw a 405 per cent increase in cash flows from operations, rising from a negative operating cash flow of Rs 150 crore in FY21 to Rs 458 crore in FY22.
This firm also claims to be a pioneer in the affordable housing category, having recently received a project from Andhra Pradesh Industrial Infrastructure Corporation to develop and build 2,000 affordable homes in Tirupati. All this make this company one of the best pick among the real estate.
