Brokerage firm Nuvama Institutional Equities believes realty stocks are attractive from a medium-term perspective in light of rising RERA-driven consolidation. With investors increasingly gaining confidence about the housing sales trajectory, the brokerage believes the odds for the next leg of re-rating are high for developers with sizeable land banks.
Nuvama wrote in its note that Prestige Estates Projects Ltd. and Brigade Enterprises Ltd. remain its top picks in the housing space.
The brokerage said the ongoing premiumisation trend in India’s property space implies that volume-value trends have diverged sharply. By volume, supply and demand in the top-7 cities fell 53% year-on-year and 7% on-year in November 2024, respectively.
By value, however, while supply dipped 44% on-year, demand rose 16% on-year. The year-to-date supply and demand (by value) increased 9% and 13% on-year, respectively.
Unsold inventory by value rose 5% on-year, but inventory months edged down on-year to 16% from 17 months in October 2024.
According to Nuvama, strong launch pipelines in the second half of FY25, increased focus on business development and potential rate cuts should boost sales going ahead.
On a year-on-year basis, sales zoomed 151% YoY in the NCR followed by Chennai and Kolkata; however, it dipped in Hyderabad. Year-to-date, sales value is up in all cities (up 13% on-year), except Hyderabad. The NCR is again taking the lead (up 68% on-year), followed by 12–15% on-year each in Kolkata, the MMR and Bengaluru.
Premiumisation is playing out in the industry, evident from the 7% on-year dip in sales volumes in top-7 cities in November, the brokerage said.
Outlook: Good times likely ahead
For companies under Nuvama’s coverage, Calendar Year 2023 was a year of growth, despite the increase in prices. While this trend has continued into YTD Calendar Year 2024, demand is expected to pick up during the festive season, Nuvama said, adding that it expects demand to remain healthy in CY25 as well.
“Over the medium to long term, we anticipate consolidation in favor of organised developers to gather steam. Moreover, rising capital intensity in the realty business, a credit crunch, and a focus on execution are likely to benefit developers with strong balance sheets and established brands,” it said.
Organised developers’ cash flow has been improving post-Covid, with cash flow generation surging, which is likely to help them gain market share, Nuvama said.
Developers with robust balance sheets are also expected to benefit from attractive business development opportunities. Overall, the brokerage reckons that stronger players will gain market share going forward.
On Thursday, shares of Prestige Estates Projects are trading 2.07% lower at ₹1,715.70, while shares of Brigade Enterprises are trading 1.50% lower at ₹1,245.85.
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