Planning to buy real estate stock in 2024? Godrej Properties, Sunteck Realty could rally 14-40% in 1 year

The company is likely to post 25% CAGR over FY23-26, as it is gearing up for 2-3 new project launches. The listed real estate companies witnessed sustained demand traction as they delivered 36% YoY growth in pre-sales to reach Rs 427 bn in 1HFY24.

In the same period, Bengaluru-focused companies reported 63% YoY growth in bookings. Despite seasonality, cumulative sales from the top-listed companies rose 44% Q-o-Q in 2QFY24 as GPL, PEPL, and PURVA posted a standout performance backed by new launches that enabled them to double their bookings YoY.

With 54% of FY23 bookings already achieved in 1HFY24, the listed universe (top 12 players) remains on track to surpass the FY24 guidance of 15-20% growth.

At the beginning of FY24, we had estimated a 15% pre-sales growth for the coverage companies based on the guidance and project pipeline, implying a 500bp drop in churn to 42%.

Companies covered under Universe launched ~ Rs 260 bn worth of projects and reported an average absorption of 60%, contributing to 44% of overall pre-sales in 1HFY24.

Strong momentum in ongoing projects sustained and contributed 56% to overall pre-sales, leading to a decline in inventory to ~ Rs 610 bn from ~Rs 720 bn.

Also Read : Mumbai leaves Delhi behind in major housing markets as homebuyers ditch the national capital

After the strong performance in 1HFY24 and given the healthy launch pipeline of 60msf for 2H, we now estimate that bookings for our coverage universe could grow 29% YoY to Rs 851 bn, implying a churn rate of 47% (similar to FY23 level).

The absorption for the top-7 cities has averaged ~130,000 units over the last four quarters vs. ~110,000 units in the preceding four quarters. Absorption is now expected to pick up further once interest rates start declining in 2HFY25.

As the rate hike cycle has peaked, we believe the residential real estate cycle is unlikely to face any significant headwinds. We expect demand to remain healthy for at least the next 2-3 years.

Most of the listed companies are trading above the value of their existing pipelines, so we prefer companies that can outperform their peers and whose valuations do not reflect this outperformance.

Over FY20-23, the listed players have outperformed the industry growth in terms of bookings by 1.5x, resulting in a consistent increase in their market share to 16% from 12% (this stood at 16.5% at the end of 1HFY24).

During this period, sales across the top 7 cities recorded a 22% CAGR with cities like NCR, Pune and Hyderabad witnessing ~2x jump in sales since the pandemic.

With interest headwinds behind and improving affordability, the industry is likely to maintain healthy growth at least in the near term.

Most of the listed peers have a very strong launch pipeline and are targeting at least two new markets apart from their home market, which will lead to a further pick-up in the market share of the listed peers.

Godrej Properties: Buy| Target Rs 2300| LTP Rs 2012| Upside 14%

GPL has achieved 52% of its annual pre-sales target and has given a strong launch pipeline of 16msf in 2HFY24, it can comfortably exceed its guidance for FY24.

The management intends to launch the recently acquired projects on priority, which would accelerate the booking growth and enable higher cash flow given the favorable ownership of new projects.

Sustained traction in BD continues to provide strong visibility on pre-sales growth. Further, improvement in profitability led by higher completion of projects with favorable ownership augurs well for the stock.

Also Read : Godrej Properties buys 4-acre land in Bengaluru, plans over Rs 1,000-cr residential project

Sunteck Realty Ltd: Buy| Target Rs 640| LTP Rs 445| Upside 43%

It is one of the leading real estate developers in the Mumbai Metropolitan Region (MMR), which is the largest micro-market in the country.

MMR has reported 70% higher absorption than pre-Covid levels. Sunteck’s multi-micro-market presence, luxury offerings across price points, and proven execution track record have made it one of the biggest beneficiaries of the strong demand.

The company is likely to post 25% CAGR over FY23-26, as it is gearing up for 2-3 new project launches.

(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of Sanjeev Beniwal)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.sanjeevbeniwal.com.)

Article Sourced from Economic Times