Q1 earnings preview: Real estate sector likely to see healthy booking growth, says MOSL; top picks

The Indian real estate market has remained strong in recent years, driven by factors such as urbanization, rising middle-class incomes, foreign investment and government support. This has led to an increase in demand, especially for mid- and high-end housing.

With increasing urbanization and incomes, there is a growing demand for luxury residential properties offering prime locations, excellent amenities, comprehensive living experiences, a community of like-minded people and modern facilities.

This positive momentum has boosted real estate development in key cities like Mumbai, Bengaluru, Gurugram, NCR and Pune. Interestingly, developers have witnessed their projects sell out within hours of booking the opening, prompting them to launch more projects to meet the growing demand.

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Amid such strong demand, listed real estate companies ended FY2024 on a high note, posting a 26% year-on-year increase in pre-sales in Q4 FY2024. ₹344 billion, with Q4 proving to be the best quarter for most companies. The 14 largest companies collectively reported ₹$1.1 trillion in pre-sales in fiscal 2024, up 41% YoY.

Despite the higher booking base, real estate players agree that demand could be sustained for the foreseeable future. Continued wage growth, rising economic activity and a variety of mortgage options have all contributed to sustained housing demand and strong office leasing.

The real estate market in India is currently valued at around `39,80,534 crore, which is 7.3% of the total economic output. By 2047, it is expected to grow to `4,84,01,000 crore, which is as much as 15.5% of the total economic output, as per industry estimates.

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Strong demand is likely to continue

Domestic brokerage firm Motilal Oswal expects its insurance arm to report pre-sale ₹286 billion in 1QFY25, reflecting 79% year-on-year (YoY) growth and flat quarter-on-quarter (QoQ) performance. The company noted that new launches across its insurance businesses were steady with notable exceptions of DLF and Godrej Properties, which successfully launched key projects in NCR and Bengaluru.

Both DLF and GPL have seen solid response to their new projects, outperforming their peers this quarter. Among the companies, Motilal Oswal expects Godrej Properties, Mahindra Lifespace Developers, DLF and Oberoi Realty to see 2-4x year-on-year growth in bookings.

On the other hand, the brokerage expects PEPL (Prestige) to decline by 11% YoY due to the lack of significant launches and a high base effect. Total revenues from companies in the coverage universe are expected to increase by 4% YoY to ₹161 billion, which means a collection efficiency of about 60%.

In addition, Motilal Oswal forecasts that the cumulative revenue recognition from insurance subsidiaries will be ₹124 billion, an increase of 28% y/y, with EBITDA at the level of ₹30 billion, which means an increase of 22% y/y.

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According to the brokerage, the Indian residential real estate sector maintained its growth momentum in fiscal 2024, with a 14% increase in absorption across the top seven cities and a 10% improvement in completions. With demand still outpacing supply (547,000 units in fiscal 2024) and an 11-month inventory glut, the brokerage expects gradual price hikes to sustain the current demand momentum.

Motilal Oswal expects a favourable supply-demand balance, comfortable inventory levels, healthy pricing power and market consolidation opportunities to keep the real estate sector in good shape for the next two to three years. Hence, it maintains a positive outlook for the sector.

The brokerage has assigned a ‘Buy’ rating to LODHA, Godrej Properties, Prestige Estates Projects, Brigade Enterprises and SOBHA, while remaining ‘Neutral’ on DLFU, Mahindra Lifespace Developers and Oberoi Realty. Among them, Prestige Estates Projects, Godrej Properties and SOBHA are highlighted as the brokerage’s top picks.

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Reservation:The views and recommendations in this article are those of the individual analysts. They do not reflect the views of Mint. We recommend that investors consult certified experts before making any investment decisions.