Real Estate Q2FY24 review: Strong quarter, launches to sharply accelerate in H2

20 Nov 2023 , 10:32 AM

Listed developers reported strong Q2FY24 performance and market share gains, despite muted launches. Customer collections and operating cashflows were healthy; however, investments in business development led to the net debt increasing marginally QoQ. Reported revenues and Ebitda margins in P&L were higher YoY, although a meaningful improvement is likely FY25 onwards. Medium-term outlook remains strong with ~70% of FY24 launches planned over H2. Given the recent rally in Real Estate stocks and strong outperformance, analysts of IIFL Capital Services trim their rating for PEPL to ADD; while retain DLF and BRGD as BUYs and as top picks within the Real Estate space. 

Strong pre-sales despite muted new launches: 

The top 14 listed developers reported 48% YoY/ 44% QoQ growth in pre-sales, led by PEPL/ GPL who reported 102%/109% YoY growth respectively, followed by SOBHA & BRGD at 48% & 31% respectively. OBER & RUSTOMJE reported a YoY decline in sales. For H1FY24, pre-sales were 32% higher YoY. On an annualised basis, sales will be up 12% YoY on a fairly high base, although H2FY24 is expected to be much stronger than H1. As reported by Anarock, industry sales were also up 36% YoY/ 4% QoQ while launches were up 24% YoY. October property registrations reported in Mumbai and Maharashtra witnessed a healthy 26% YoY growth — higher than the long-term average. Pricing trends were mixed – while developers and projects in the NCR markets registered strong growth. Analysts of IIFL Capital Services saw decent pricing growth in Bangalore, while Mumbai projects witnessed modest-low to mid-single digit pricing increase — enough to cover inflation.

Completions to accelerate Q4FY24 onwards: 

Reported P&L revenue for coverage companies was robust, up 31% YoY and 11% QoQ – this was driven by 15% YoY increase in completions. However, it declined 34% QoQ. Ebitda margins cumulatively have improved to 27% from 22% QoQ. Currently, most of the completions are for the projects launched in CY19/20; and over FY25/26, revenue recognition is likely to pick up as higher launches post-Covid are set for completion. 

Business development activity steady: 

Listed players continued to add projects for replenishing launches and targeting ~20% Cagr in presales over the medium term. Analysts of IIFL Capital Services note that the top 5 players have added 14msf / >Rs80bn in GDV in Q2 — up 157% YoY. Business development (BD) has been strong across both JDA/ JV and owned projects. In fact, most large developers stay ahead of their guidance w.r.t adding projects eg: LODHA, GPL, Keystone, etc. Key challenge to business development remains meaningful increase in land prices especially in northern markets like Gurgaon. 

Net debt trending higher despite strong collection and OCF: 

Collections were healthy with 18% growth YoY. Operating cashflow margins were also strong at 33.5% on an average (vs 25% in Q1), with operating cashflows registering a growth of 36% YoY. Despite the strong growth, net debt was up 2% QoQ driven by investments in business development. 

Launches to accelerate in H2FY24: 

During the quarter, launches were muted all across with the same being skewed towards the H2FY24 especially in Q4FY24. Analysts of IIFL Capital Services estimate that of the 90msf (GDV of Rs890bn) launches planned by six developers under coverage universe, only 28msf was launched in H1. The companies remain confident of being able to broadly meet their guidance on launches — strongest for DLF, OBER, LODHA, PEPL, BRGD and GPL. 

Outlook healthy; valuations not inexpensive: 

Developers have largely maintained their pre-sales guidance, and are likely to either meet or exceed the initial guidance. The outlook on collections, launches, business development remains intact; while P&L performance is likely to improve FY25 onwards. Realty index sharply outperformed in the last three months vs broader markets (by 28%); analysts of IIFL Capital Services downgrade PEPL to ADD rating, while continue to prefer DLF and BRGD as BUY and their top picks within the Real Estate space.