12 October 2023 Q2FY24 Results Preview

Real Estate
Festive cheer awaited
 Whatever is being launched is being sold; presales momentum remains strong: CMP TP
Company Reco.
Real estate developers are reporting record presales in the seasonally weakest (INR/sh) (INR/sh)
quarter Q2; Sobha (INR 17bn, growth of 48/18% YoY/QoQ), Prestige (INR 71bn, DLF 567 BUY 576
growth of 102/82% YoY/QoQ), Macrotech (INR 35bn, growth of 12/5% YoY/QoQ) Oberoi Realty 1,146 BUY 1,298
and PHNX (consumption of INR 26.4bn, growth of 9/0% YoY/QoQ on a like-to- Sobha
745 BUY 1,024
Developers
like basis). We expect this momentum to continue in 3QFY24 with new launches
Brigade
adding a multiplier effect to the presales. Within micro-markets, we expect the 611 BUY 739
Enterprises
consolidation story to continue in the top six cities with strong volume-driven Kolte-Patil
497 BUY 464
Developers
growth in Bengaluru, MMR and Pune, while NCR growth will be driven largely
Prestige Estates 724 BUY 786
by higher price appreciation in the luxury segment. Also, with the pick-up in
Phoenix Mills 1,940 BUY 2,000
launches and higher supply, the average price realisation is expected to be
Godrej
flattish. Geographical diversification is likely to continue with growth in presales Properties
1,701 ADD 1,664
from the non-core market (MMR for Prestige and Kolte-Patil; Pune/Bengaluru for Mahindra
523 BUY 622
Macrotech; and NCR for Sobha). Lifespaces
Macrotech
 Interest rate no longer a determining factor for demand: A higher mortgage rate Developers
807 ADD 750

has the potential to hit affordable and mid-income housing whilst luxury demand
remains indifferent as the luxury segment is driven by the wealth effect. The
recent GDV addition by developers like Prestige, Godrej and Macrotech shows a
higher tilt towards premium projects. We are seeing higher presales growth from
the premium real estate segment in the NCR and Bengaluru markets, which are
resulting in higher average price realisation for developers.
 Return to Office picking pace; physical occupancies could ramp up to ~70% by
Mar-24, while retail consumption shows fatigue: Large IT companies have
mandated their employees to return to the office and we expect physical
occupancies to increase from ~45-50% to ~70% by Mar-24. Since COVID, there has
been a churn in these companies with a large part of the workforce now
comprising freshers. There is a need to collaborate and learn. The increase in
physical occupancies will lead to quicker decision-making on lease closure and
hardening of office rentals. On malls, we expect consumption fatigue to set in on
a higher base as people look at newer avenues to spend, viz. hospitality, travel
etc. The upcoming festive season will still continue to drive growth before it
tapers off towards the end of 2HFY24.
 Organised players much ahead in business development, which will aid
market share gains: For the year FY23, we saw accelerated business development
activities from top developers. Godrej added INR 320bn worth of GDV in FY23
against the guidance of INR 150bn. Macrotech also surpassed its BD guidance of
INR 150bn by adding INR 198bn worth of GDV in FY23. We have seen
encouraging BD activity with a strong GDV addition of INR 143bn by Macrotech
(80% of FY24 guidance) during H1FY24. Over the course of FY24, we expect a
new land bank addition by our coverage universe. With robust balance sheets,
Parikshit D Kandpal, CFA
low cost of capital and strong brands, organized players are at an advantage in
parikshitd.kandpal@hdfcsec.com
adding new BD and are positioned for further market share gains.
+91-22-6171-7317
 Q2FY24 earnings trend: We expect the aggregate revenue/EBITDA/PAT for the
coverage universe to report YoY growth by 30/32/37%. On an aggregate level, we Manoj Rawat
are expecting the YoY margin to expand by 137bps QoQ. manoj.rawat@hdfcsec.com
 Recommendations and stock picks: We like OBER as it has no competition in the +91-22-6171-7358
premium real estate segment and has planned a slew of launches for H2FY24.
MLIFE may continue to outperform on industrial and new land bank additions; Nikhil Kanodia
besides, DLF is a play on the NCR market and late-cycle commercial office nikhil.kanodia@hdfcsec.com
recovery. In southern markets, we like Sobha and Prestige Estate. Top picks: DLF, +91-22-6171-7362
Oberoi Realty, Sobha, MLIFE, and PEPL.

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Real Estate: Q2FY24 Results Preview
Financial summary: Q2FY24E
Net Sales (INR mn) EBITDA (INR mn) EBITDA margin (%) APAT (INR mn)
(Y/E March) YoY
Q2FY24E YoY (%) QoQ (%) Q2FY24E YoY (%) QoQ (%) Q2FY24E QoQ (bps) Q2FY24E YoY (%) QoQ (%)
(bps)
DLF 14,517 11% 2% 4,217 -3% 6% 29 (449) 121 5,539 16% 5%
Oberoi Realty 10,465 52% 15% 5,865 89% 24% 56 1,096 398 4,047 27% 26%
Sobha Developers 8,625 29% -5% 625 -34% -4% 7 (690) 5 86 -55% -29%
Brigade Enterprises 8,829 0% 35% 2,379 10% 36% 27 232 21 850 33% 121%
Kolte-Patil Developers 5,140 317% -10% 800 1534% -26% 16 2,010 (337) 335 481% -41%
Prestige Estates 17,313 21% 3% 5,013 36% -5% 29 314 (238) 1,541 209% 171%
Phoenix Mills 10,003 54% 23% 5,953 56% 21% 60 102 (122) 2,995 61% 25%
Godrej Properties 6,768 310% -28% (322) 52% -655% (5) 3,607 (538) 1,444 115% -50%
Mahindra Lifespaces 1,226 76% 25% (235) 40% 46% (19) 3,726 2,484 116 249% 370%
Macrotech Developers 17,791 1% 10% 3,591 -15% 9% 20 (383) (22) 1,842 -9% 5%
Total 100,677 30% 5% 27,887 32% 10% 28 32 137 18,794 37% 9.8%
Source: Company, HSIE Research

Valuation summary
Mcap Adj. EPS (INR/sh) P/E (x) EV/EBITDA (x) ROE (%)
CMP
Real Estate (INR Reco TP
(INR/sh) FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E
bn)
DLF 1,285 567 BUY 576 9.8 10.9 13.3 53.1 47.8 38.9 58.6 55.4 43.3 6.3 6.7 7.8
Oberoi Realty 413 1,146 BUY 1,298 43.0 52.5 54.7 26.4 21.6 20.7 18.1 14.9 13.9 12.0 13.0 11.9
Sobha Developers 59 745 BUY 1,024 18.4 33.6 42.7 33.8 18.5 14.5 12.8 7.4 4.8 6.8 11.4 13.0
Brigade
146 611 BUY 739 11.7 11.7 11.8 54.4 54.2 53.9 18.5 17.4 16.7 8.1 7.7 7.4
Enterprises
Kolte-Patil
35 497 BUY 464 29.9 41.6 42.2 15.2 10.9 10.8 10.7 8.4 7.0 18.9 21.7 18.1
Developers
Prestige Estates 260 724 BUY 786 15.1 20.8 30.2 43.0 31.1 21.4 14.9 12.3 9.7 5.9 7.7 10.3
Phoenix Mills 324 1,940 BUY 2,000 51.4 64.4 90.9 36.9 29.4 20.8 18.0 14.3 11.1 11.2 12.6 15.6
Godrej Properties 462 1,701 ADD 1,664 22.7 23.9 26.5 73.1 69.7 62.7 122.3 85.6 58.0 6.6 5.6 4.9
Mahindra
87 523 BUY 622 3.4 11.7 14.0 167.3 48.3 40.2 (31.4) 35.1 25.2 2.8 9.3 10.1
Lifespaces
Macrotech
712 807 ADD 750 17.7 21.0 33.8 41.7 35.2 21.8 29.4 24.0 16.5 12.8 13.6 19.1
Developers
Source: Company, HSIE Research

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Rating Criteria
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Mac rotec h Developers

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REDUCE: -10% to +5% return potential

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Real Estate: Q2FY24 Results Preview

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Real Estate: Q2FY24 Results Preview

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