iifl-logo-icon 1

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

Q1FY24 Review: Residential real estate: Continued march towards profitability

21 Aug 2023 , 10:57 AM

Listed developers reported a healthy pre-sales growth for Q1FY24, especially considering the weak new launches. Medium term outlook on pre-sales remains healthy with most developers continuing to guide towards ~20% CAGR over the next 3 years and now, aggressively looking at business development to deliver the same. Despite healthy operating cash flows, higher investments in projects/land bank have led to the net debt going up YoY/QoQ. Reported profitability was weak; however, it is likely to steadily improve over H2FY24/FY25. Real Estate indices have outperformed the broader markets by ~17%, and are trading close to their NAVs.

Healthy pre-sales growth despite weak launches

After more than doubling pre-sales over FY21-23, developers continue to report healthy growth in the pre-sales of 12% YoY. However, on a QoQ basis, pre-sales were down 34% as seasonally Q4 is the best quarter. During the quarter, launches were muted, partly driven by approval-related issues for Bangalore-based developers with change in the state government. Developers are guiding to a sharp pickup in new launches in H2FY24, and could see up to 15-20% higher launches than FY23 — which is likely to drive the guided 15-20% growth in pre-sales for FY24. Further, developers continue to take calibrated price hikes across projects.

Demand for premium projects /larger-sized homes continues to be strong. New launches will likely be geared for catering to this segment rather than the mid-income/affordable segments. Further, industry growth remains robust, as reflected in the strong registrations data and industry sales. According to ANAROCK, Residential demand increased 36% YoY in Q1FY24, largely driven by strong 25% YoY growth in new launches. On a YoY basis, inventory levels registered a modest decrease. Share of high-end and luxury sales (ticket size of >Rs. 8 million/unit) for CY22 doubled from CY18, while the share of affordable (ticket size <Rs. 4 million) has halved.

Reported profitability remains weak

Despite healthy operating performance, reported P&L probability continued to be weak with reported revenues down 5% YoY (for coverage universe) — primarily driven by lower completions. Cumulative Ebitda and PAT have also declined YoY. Most of the developers report P&L on completed project method based on Ind AS-115, which defers the project’s recognition to completion. Hereon, developers expect recognition and margins to improve steadily as completions of project launches post-COVID pick up — which should reflect in the market improvement in the reported financials post FY25.

Aggressive focus on business development

Collections for the top 11 developers increase 14% YoY, whereas OCF dipped marginally YoY. Further, aggressive investments by developers in business development have led to net debt going up by 7% YoY/ 2% QoQ. Borrowing cost has also sharply gone up YoY by 93 basis points and 19 basis points QoQ. Developers are now looking to add meaningfully higher GDV of projects than sales, building in strong growth expectations over the next few years. Over the last few quarters, developers have also forayed beyond their core markets – the recent being DLF foraying in Mumbai. Oberoi Realty is looking to buy land in Gurgaon; Macrotech foraying into Bangalore; Brigade having expanded its presence meaningfully in Chennai and recently, in Hyderabad as well.

Macro factors favorable; valuations leave room for modest upside

Real estate stocks performed post the RBI decision to pause rate hikes in 2023; YTD, NIFTY Realty has outperformed NIFTY by 17%. Our strategy team expects monetary easing later in 2023 across advanced economies, which could trigger a risk-on phase and strong FII inflows, especially from 2024 benefitting the real estate sector during this period. While valuations (versus NAV) are not cheap, analysts at IIFL Securities have reiterated developers with low leverage levels (for the Residential business) and strong operational cashflow generation will outperform.

Related Tags

  • Real estate
  • Residential real estate
sidebar mobile


Read More
Knowledge Centerplus

Logo IIFL Customer Care Number
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

Knowledge Centerplus

Follow us on


2024, IIFL Securities Ltd. All Rights Reserved

  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.