The real estate cycle is strong. Six Stocks You Should Add to Your Watchlist

First came demonetisation, then the crisis in the non-banking financial companies (NBFC) sector and finally the pandemic.

To complicate matters further, the industry had to deal with a new law – the Real Estate (Regulation and Development) Act, 2016 (RERA), which made life difficult for most of the players… and of course, goods and services. Launch of Service Tax (GST). Administration.

All these posed challenges for the real estate industry.

However, in a strange way, the pandemic came as a savior for this ailing industry.

What sounded like the death knell real estate companiesWas really a blessing.

This changed the attitude of home buyers and reinstated the importance of owning homes.

And it was backed by ultra-low interest rates that made it really cheap to borrow.

After that, there was no turning back. Demand for residential properties increased, and unsold inventory declined drastically.

Though the commercial sector has not seen much growth due to work from home trend, it is expected to revive soon on the basis of long term economic recovery.

After residential, the retail segment is also performing well as the lockdown restrictions have been completely lifted.

This marks the beginning of another cycle for the real estate sector. Keeping this in mind, we have shortlisted six stocks that should be on your watchlist.

#1 Oberoi Realty

First on our list is Oberoi Realty, one of the most reputed brands in the real estate market.

The company develops residential, commercial, retail and social infrastructure projects in Mumbai, one of the major real estate markets in the country.

It also provides hospitality and property management services.

Oberoi Realty has developed 42 projects across Mumbai, which are approximately 11.9 m sq ft (sq ft) of spaces.

Some of its notable projects are Oberoi Garden City, Oberoi Mall and Exclusive.

Currently, it is developing two premium high-storey residential towers, Eternia and Enigma, in Central Suburban Mumbai.

Apart from this, it is also developing some residential projects named Sky City and Three Sixty West.

During FY 2022, the company sold carpet area of ​​1.32 m sft, which is 24% higher than the previous year.

This launched the second tower in the Elysian project. In addition, it entered into two agreements for plots of land in two different locations in the financial year 2022.

Revenue grew 31.7% year-on-year (YoY) driven by growth in hospitality and project revenues. Net profit also grew 9.7% YoY during FY22.

With the real estate sector back on track, Oberoi Realty plans to capitalize on this growth and borrow funds for its new project.

The debt-to-equity ratio of the company is 0.2 times, which gives room to take more debt comfortably.

The company’s new land acquisitions in strategic locations (South Mumbai and Thane) paved the way for revenue growth in the medium term.

#2 Godrej Properties

Second on our list is Godrej Properties, the real estate arm of the Godrej Group.

The company primarily focuses on the development of residential properties in ten cities in India.

Being part of the Godrej Group, it also has access to the group’s land bank. In the past, it has tied up with other group companies for land development.

So far, it has successfully developed 84 projects in Pune, Mumbai, Bangalore and Delhi which account for 80% of the salable area.

During FY 2022, Godrej Properties’ revenue grew 94% year-on-year, driven by strong sales. This. recorded the highest net profit of 5 billion against the loss of 0.7 billion last year.

The company sold 9,121 houses and also recorded highest bookings and cash collections.

It launched 16 new projects. The company also added 9.3 m sq ft of projects in four major cities.

Despite a strong project pipeline, the company managed to maintain its debt-to-equity ratio at 0.1x. However, its return on capital employed (ROCE) improved by 6.7% during the year. The RoCE for the financial year 2022 was 9%.

In the future, its strong market position, strong collections and sales, and long track record will drive the company’s growth in the medium term.

The company is also planning to expand its business in Tier 2 cities.

#3 Macrotech Developers

Next on our list is Macrotech Developers, one of the largest real estate developers in India.

The company’s projects cover all sections of the society, such as premium, middle income and affordable.

Some of its residential property brands are Lodha, Crown, Casa and Lodha Luxury.

It also develops commercial space.

The company has also diversified into industrial and logistics parks and is currently working on a project in Navi Mumbai.

During the financial year 2022, the company took up 13 new projects with a salable area of ​​5.6 m sq. Apart from this, it has added 11 new projects to its pipeline.

In FY 2022, revenue grew by 77%, mainly due to a pick-up in construction activity. Net profit increased by 2,420% on a year-on-year basis due to higher realizations and lower interest cost. And of course, the base effect.

Last year, it reduced its net debt 67.7 billion As a result, the debt-to-equity ratio decreased from 0.9x to 0.2x.

The RoCE for the fiscal year 2022 was 16.3%.

The company has recently entered the Bengaluru market through a Joint Development Agreement (JDA) to develop a land area of ​​approximately 1.3 m sft.

In the financial year 2023, 15 new projects are planned to be launched in Pune and MMR.

Going forward, a strong project pipeline and expansion into existing and new markets provide revenue visibility over the medium term.

#4 Phoenix Mills

Fourth on our list is Phoenix Mills, the largest mall owner in India.

The company is engaged in the business of operation and management of malls. It is also involved in the construction of residential and commercial properties. Phoenix Mills also provides hospitality services in India.

It operates eight malls with six meters square in six cities. Some of the famous malls are Phoenix Palladium and Phoenix Market City.

The company is also developing four new malls in four cities. Currently, the company is operating an area of ​​13 m sft and is developing 11.1 m sft in residential, retail and commercial sectors.

Its undeveloped properties are worth 2 billion, primarily in the retail segment.

In fiscal year 2022, revenue grew by 38.2%, driven by the hospitality and commercial sectors. Net profit also improved by 675.8% year-on-year.

During the year, the company refinanced its debt to reduce its interest costs. Its debt to equity ratio and RoCE for FY22 were 0.2x and 4.36%, respectively.

Going forward, a diversified revenue portfolio, strong leadership and rising consumption in the retail mall segment will drive revenue growth in the medium term.

#5 Ajmera Realty

Next on our list is Ajmera Realty, a smallcap real estate stock.

The company develops residential and commercial properties in Mumbai, Bengaluru and Ahmedabad. It also develops properties in the UK and Bahrain in collaboration with local companies. It has completed projects with an area of ​​30.5 m sq and is currently developing an area of ​​3.9 m sq in Mumbai, Bengaluru and Ahmedabad.

It plans to launch six new projects in Mumbai and Pune in the next two years.

Revenue at Ajmera Realty grew 39% YoY during FY 2022, driven by higher realizations. Net profit also improved by 47% YoY due to operational efficiency.

Its debt-to-equity ratio stood at 1.1 times as compared to 1x in the previous fiscal. However, its ROCE improved to 7.9 per cent.

Going forward, a strong project line and rising demand for housing will drive the growth of the company.

#6 Suntec Realty

Last on our list is Sunteck Realty, a real estate company based in Mumbai.

It is engaged in the business of development of premium residential and commercial properties.

So far, it has completed 13 projects and seven are under development projects, most of them in Mumbai.

Apart from real estate development, it also provides construction and maintenance services.

Revenue and net profit declined in FY 2022 due to lower sales. However, it has managed to keep its debt-to-equity ratio at a low of 0.2x. This is a result of the JDA route to develop properties while keeping their capex low.

Going forward, Suntec Realty’s partnership with new projects and housing demand will help reduce its high-selling inventory, thereby improving sales and revenue.

Is the Real Estate Industry a Good Bet?

The real estate industry certainly looks to be on an uptrend.

Government initiatives such as ‘Housing for All, introduction of RERA to increase transparency and instill confidence of home buyers, and moratorium benefits during COVID have pushed the sector on the growth curve.

In addition, the opportunities for real estate development offered by emerging cities are massive. All these pave the way for future development in this field.

However, there are going to be many hurdles in the industry. Rising home loan interest rates can reduce the affordability for home buyers.

One can only wait and see how the industry pans out in this rising interest rate regime.

Here’s what Tanushree Banerjee, Co-Head of Research at Equitymaster, had to say about the realty sector.

The biggest pressure on real estate players is high debt, and with interest rates rising, investors need to be wary of realty companies, which tend to pile up debt and get fed up with poor cash flow.

Also, it is a sector where investors have to be very careful about the quality of management. Poor accounting and lack of corporate governance have been the reasons for the poor performance of many big realty companies.

Make sure you analyze the fundamentals thoroughly before investing in any real estate company,

Also, investing in a staggered manner will help you deal with volatility.

Happy investment!

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from equitymaster.com

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